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A store has 5 years remaining on its lease in a mall. Rent is $1,900 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,700 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).
a. Should the new lease be accepted? (Hint: Be sure to use 1% per month.)
b. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Round your answer to the nearest cent. Do not round your intermediate calculations. $
c. The store owner is not sure of the 12% WACC—it could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases? (Hint:Calculate the differences between the two payment streams; then find its IRR.) Round your answer to two decimal places. Do not round your intermediate calculations.
A stock has an expected return of 14.6 percent, the risk-free rate is 5.70 percent, and the market risk premium is 7.3 percent. Required: What must the beta of this stock be?
Profit margin and asset turnover can be combined to create. Elsie Jackson is saving for a down payment on a condo. She needs 20,000. How much must she invest in a savings account that pays 5% annually to have the 20,000 in 8years? Round to the neares..
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Study the “Calculating Inventory Turnover” portion of the chapter closely, whereby the cost of good sold divided by the average inventory equals the inventory turnover. Compute two inventory turnover calculations as follows: Use the LIFO information ..
Cimarron State Bank reports the following items on its balance sheet: cash = $200 million; U.S. government securities = $150 million; residential real estate loans = $300 million; and corporate loans = $350 million. assume Cimarron State Bank reports..
Sandra deposit $27,800 to 15 per cent of compound interest every two months, Calculate the amount after 6 years from the initial deposit of $27,800.
Hart Enterprises recently paid a dividend of $1.25. It expects to have nonconstant growth of 20% for 2 years followed by a constant rate of 5% thereafter. The firm's rate of return is 10%. How far away is the horizon date? What is the firm's horizon ..
B&O is considering a stock dividend of 7.5%. What will the stock price be after the dividend (Assuming no other changes)?
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The new owner thinks that inventories are excessive and can be lowered to the point where the current ratio is equal to the industry average.
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