What is the present value of cash flows

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An owner of the Atrium Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $14 per square foot with step-ups of $1 per year beginning one year from now.

Required:

a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.)

b. The owner of ATRIUM believes that base rent of $14 PSF in (a) is too low and wants to raise that amount to $18 with the same $1 step- ups. However, now ATRIUM would provide ACME a $53,600 moving allowance and $136,000 in tenant improvements (TIs). What would be the present value of this alternative to ATRIUM?

c. ACME informs ATRIUM that it is willing to consider a $17 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $9 PSF for 20,000 SF per year. If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or TIs. What would be the present value of this proposal to ATRIUM?

Reference no: EM133061819

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