1. Peter La Fleur is the sole proprietor of La Fleur Enterprises.He is exploring the option of going public because his company isgrowing exponentially. The consulting firm that is reviewing hisfinancials has questioned whether La Fleur’s CFO is technicallycompetent enough to be the CFO of a publically traded company, asthey believe he made several bad financial decisions. The twosituations, which the firm brings to Peter’s attention, are asfollows:

1. La Fleur purchased the building in which their corporate officeis housed on 1/1/16 for $4,500,000.   They put down$900,000 cash and had to borrow the remaining amount at 5% over a20-year term. At the time of the purchase, they had the option tolease the building. The 20-year lease would begin on 1/1/16, andcalled for annual payments of $350,000 beginning on that date forthe first 10 years and payments of $300,000 beginning on 1/1/26 forthe remaining 10 years of the lease. La Fleur had the option topurchase the building for $1 on December 31, 2035 at the end of thelease. Did the CFO make the right decision by purchasing thebuilding? Why or why not? Show your work.
2. This year, the company sold land for a non-interest bearingnote. The note calls for annual payments of $20,000 for 5 years.The payments will begin one year from the date of the sale. Anappropriate rate of interest for this type of note is 4%. The landhad an original purchase cost of $90,000. The CFO told theaccounting department to record the sale as follows:

Notes Receivable                 $100,000

           Land                                      $90,000

           Gain on Sale ofLand            $ 10,000

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