Reference no: EM132908093
Question - The Jacob Corporation is considering a sale and leaseback of its major Sydney property, consisting of land and building.
Low Row Ltd, an overseas property developer has offered to purchase the property for $10,000,000 and lease it back to Jacob for $1,250,000 per annum payable in advance for ten years.
Jacob would continue to pay all rates and maintenance estimated at $200,000 per annum.
It is forecast that the leased asset will increase in value by 35% over the next ten years.
If the sale and leaseback is not undertaken now, the property will be sold at the end of the ten-year period. There is no capital gains tax.
The income tax rate is 30% and is paid in the year of income, and the discount rate 9%.
Required - Should the Offer to sell and leaseback be accepted?
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