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NPV and IRR A store has 5 years remaining on its lease in a mall. Rent is $2,000 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 the 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.
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, and then find its IRR.) Round your answer to two decimal places.
Assume sigma=0.15, nu=0.10, and current stock price $32. Monthly interest rate is 1%. Compute present values of the following options expiring in 3 months. (a) A European call option with strike $30, assuming $2 dividend in 40 days. (b) European put ..
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Which one of the following statements is correct concerning market efficiency?
Suppose you want to borrow $11,123.57 and will pay back $500 monthly for 2 years. What is the annualized interest rate for this loan?
Bunge paid $3.25 in dividends in the most recent past year, which is the same amount they have paid in the prior two years. Ten years ago, Bunge dividends were $1.50 per share. What is the compound average annual growth rate for Bunge dividends over ..
A stock had returns of 14 percent, 25 percent, and 3 percent for the past 3 years. Based on these returns, what is the probability that this stock will earn at least 25.00 percent in any one given year? 5.0 percent 1.0 percent 2.5 percent 0.5 percent..
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