Compute the present value of the purchase

Assignment Help Financial Management

Reference no: EM13911224

In 2013, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2014, McDowell took possession of the leased property. The 20-year lease is effective for the period January 1, 2014, through December 31, 2033. Advance rental payments of $816,200 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $408,600 are due on January 1 for each of the last 10 years of the lease term. McDowell has an option to purchase all the leased facilities for $1 on December 31, 2033. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was approximately $7,220,800. If the company had borrowed the money to purchase the facilities, it would have had to pay 10% interest.

a) Compute the present value of the lease

b) Compute the present value of the purchase

Reference no: EM13911224

Questions Cloud

Standard deviation of return-risk-free rate of interest : The returns on stocks A and B are perfectly negatively correlated (). Stock A has an expected return of 21 % and a standard deviation of return of 40%. Stock B has a standard deviation of return of 20%. The risk-free rate of interest is 11 %. What mu..

Describe the key features of a manufacturing mis : Describe the key features of a manufacturing MIS for an automotive company. What are the primary inputs and outputs? What are the subsystems?

What is the equivalent annual annuity of this deal : An company buys a color printer that will cost $18,000 to buy, and last 5 years. It is assumed that it will require servicing costing $500 each year. What is the equivalent annual annuity of this deal, given a cost of capital of 12%?

Forecasts the year-end free cash flows : Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below. Year 1 2 3 4 5 FCF -$22.24 $38.7 $43.4 $51.1 $55.5 The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 3..

Compute the present value of the purchase : In 2013, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. Compute the present value of the lease. ..

Identify three fundamental uses for an executive support : Identify three fundamental uses for an executive support system.

Liaison between the independent auditor and corporation : An audit committee is comprised of several members of the board of directors. The committee acts as the liaison between the independent auditor and the corporation. What is the responsibility of the Audit Committee of the Board of Directors?

What is the difference between what if analysis and goal : What is the difference between what if analysis and goal seeking analysis?

Interest is computed using the discount method : Find the finance charges on an 8 percent, 18-month, single-payment loan when interest is computed using the simple interest method. Find the finance charges on the same loan when interest is computed using the discount method. Determine the APR in ea..

User Account

All Pages