A store has 5 years remaining on its lease in a mall. Rent is $2,000 per...

80.2K

Verified Solution

Question

Finance

A store has 5 years remaining on its lease in a mall. Rent is$2,000 per month, 60 payments remain, and the next payment is duein 1 month. The mall's owner plans to sell the property in a yearand wants rent at that time to be high so that the property willappear more valuable. Therefore, the store has been offered a"great deal" (owner's words) on a new 5-year lease. The new leasecalls for no rent for 9 months, then payments of $2,700 per monthfor the next 51 months. The lease cannot be broken, and the store'sWACC is 12% (or 1% per month).
Should the new lease be accepted? (Hint: Be sure to use1% per month.)
Yes or No?
If the store owner decided to bargain with the mall's owner overthe new lease payment, what new lease payment would make the storeowner indifferent between the new and old leases? (Hint:Find FV of the old lease's original cost at t = 9; then treat thisas the PV of a 51-period annuity whose payments represent the rentduring months 10 to 60.) Do not round intermediate calculations.Round your answer to the nearest cent.
$_
The store owner is not sure of the 12% WACC—it could be higheror lower. At what nominal WACC would the store owner beindifferent between the two leases? (Hint: Calculate thedifferences between the two payment streams; then find its IRR.) Donot round intermediate calculations. Round your answer to twodecimal places.
_%

Answer & Explanation Solved by verified expert

4.5 Ratings (772 Votes)

SEE THE See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

A store has 5 years remaining on its lease in a mall. Rent is$2,000 per month, 60 payments remain, and the next payment is duein 1 month. The mall's owner plans to sell the property in a yearand wants rent at that time to be high so that the property willappear more valuable. Therefore, the store has been offered a"great deal" (owner's words) on a new 5-year lease. The new leasecalls for no rent for 9 months, then payments of $2,700 per monthfor the next 51 months. The lease cannot be broken, and the store'sWACC is 12% (or 1% per month).Should the new lease be accepted? (Hint: Be sure to use1% per month.)Yes or No?If the store owner decided to bargain with the mall's owner overthe new lease payment, what new lease payment would make the storeowner indifferent between the new and old leases? (Hint:Find FV of the old lease's original cost at t = 9; then treat thisas the PV of a 51-period annuity whose payments represent the rentduring months 10 to 60.) Do not round intermediate calculations.Round your answer to the nearest cent.$_____ The store owner is not sure of the 12% WACC—it could be higheror lower. At what nominal WACC would the store owner beindifferent between the two leases? (Hint: Calculate thedifferences between the two payment streams; then find its IRR.) Donot round intermediate calculations. Round your answer to twodecimal places._____%