The owner of a local restaurant needs to decide between two leaseoptions as presented below for the next 3 years.Option 1: A fixed fee of 540,000 plus 4% of the total sales.Option 2: Afixed fee of 560,000 plus 2% of the total sales.The business is recently crated, and the owner's projected sales willreach 5700,000 in the third year: and it will grow by 10% per year forthe next several years.Which one of the following would you recommend, and why?- More information is neede a to solve for the answerEither option does not makedifferrece because the amount of revenues25 51,000,000 is the IndifferencePont. Phis it doesn't matterSelect the Oation I for theneast 3 yearseand renew the lease contract inthie fourth yor wili De kution 2Select the Ostion 2 for the first 3 years, and switch it tothe Opeis aThe theoretina

A lease agreement is signed when a party buys the right to use any asset or property on a fixed rent…

Answered: The owner of a local restaurant needs…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have to buy a new copier. The cost of the copier is $1,900, plus $415 per year in maintenance costs. The copier will last for five years. Alternatively, a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 6.5%, what is the most you would be willing to pay per year to lease the copier (your first lease payment is due in one year)? (Select the best choice below.) A. The most you would be willing to pay per year to lease the copier is $415. B. The most you would be willing to pay per year to lease the copier is $3,624.61. C. The most you would be willing to pay per year to lease the copier is $872.21. D. The most you would be willing to pay per year to lease the copier is $1,900.
EXERCISE 2: LEASING VERSUS BUYING You have two options: to buy or to lease a video store. Option 1: Purchase Year $300,000 80,000 Cost Additional cost Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations Cash flow from operations 1 45,000 70,000 1 90,000 105,000 140,000 3 4. 6. 160,000 165,000 170,000 175,000 180,000 10 11 Cash flow from sale of business 400,000 If you want to make 25% on your money, should you buy the video store? To answer this question, calculate the following: 1. Net present value 2. Internal rate of return Option 2: Leasing Activate Go to Settin
In order to induce a tenant to move into your shopping center, you must pay a $1.1 million tenant improvement allowance to fit out their space. The tenant agrees to lease 18,000 square feet of space at $45 per square foot. Lease term is ten years. Rate of Return is 10% What is the effective rent?
You are interested in leasing a car for $425 per month, due at the beginning of each month. Using an interest rate of 4% annually, what is the present worth of a one-year lease for this car? a) Slove using Annual Worth b) Solve using Internal Rate of Return Excel is preferred
A property owner is evaluating the following alternatives for leasing space in his office building for the next five years: Net lease with CPI adjustments. The rent will be $16 per square foot the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 4 percent per year. Calculate the effective rent to the owner (after expenses) for the lease using a 10 percent discount rate A. $21.48 B. $17.90 C. $16.11 D. $19.69
You have a prospective lessee for your office property and have the following options (assume a 7-year window and 2% discount rate). Which one will provide you with the highest effective rent? a. Option A: Rent is $98 per rentable square foot with the lessor paying operating expenses up to $40, lessee responsible for remainder. Operating expenses are $39 in first year and increase by $3 each year b. Option B: Rent is $90 per rentable square foot and will increase by $3 each year. Operating expenses are $40 during the first year and will increase by $1 every year. c. Option C: Rent is $91 per rentable square foot per year and will increase by $2.50 each year. Operating expenses are $45 for the first year and will increase by $3 every year, with lessor covering up to $48.
A case study analysis of leasing business equipment compared to purchasing the same equipment.How do you determine whether you should lease or buy a piece of equipment for your business? Let's assume you're faced with the following lease-or-buy decision:You can purchase a $50,000 piece of equipment by putting 25 percent down and paying off the balance at 10 percent interest with four annual installments of $11,830. The equipment will be used in your business for eight years, after which it can be sold for scrap for $2,500.The alternative is that you can lease the same equipment for eight years at an annual rent of $8,500, the first payment of which is due on delivery. You'll be responsible for the equipment's maintenance costs during the lease.You expect that your combined federal and state income tax rate will be 40 percent for the entire period at issue. You further assume that your cost of capital is 6 percent (the 10 percent financing rate adjusted by your tax rate).Question:Using…
You need a loan of $175,000 to buy a home. Calculate your monthly payments and total closing costs for each choice below. Briefly discuss how you would decide between the two choices. Choice 1: 30-year fixed rate at 7% with closing costs of $1400 and no points. Choice 2: 30-year fixed rate at 6.5% with closing costs of $1400 and 2 points. What is the monthly payment for choice 1? What is the monthy Payment for choice 2? What is the closing paymennt for choice 1? What is the closing paymennt for choice 2?
You are considering purchasing a new automobile with the upfront cost of $26,000 or leasing it from the dealer for a period of 48 months. The dealer offers you 2.80% APR financing for 5 years (with payments made at the end of the month). Assuming you finance the entire $26,000 through the dealer, your monthly payments will be closest to $425.09 $429.11 O $473.25 $428.85
Li Jun can purchase a new car for $20,000. Alternatively, in addition to a down payment of $2,600, Li Jun can make lease payments of $500 at the beginning of each month for three years to lease the car. The car has a residual value of $10,000. Assume that the cost of borrowing is 4.47% compounded monthly. a. Which option is economically better for Li Jun? Buy Now O Lease b. In the lease option, what will be the buyback value of the vehicle at the end of two years? Round to nearest cent. SAVE PROGRESS SUBMIT ASSIGNMENT
A buyer is considering purchasing a 10-acre parcel in Peoria, Arizona for economic development. The parcel has a sales price of $720,000. The buyer agrees with the seller for purchasing the property with 15% down up front and paying off the balance in 12-months. If a bank is willing to provide 3% annual interest, compounded monthly, how much should the monthly deposit be into that account to pay off the desired balance to the seller?
You are considering leasing a car for 48 months where the advertisement says that monthly payments are $399 with $5,000 due at signing. You have seen elsewhere that the market value of the new car is $35,000 and that the expected market value in 4 years is $25,000. What effective annual rate (EAR) are you paying for this lease?

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