Salem Co. has a year-end of December 31 and they are evaluating the cash flows of some potential investments/projects they are considering for their next fiscal year, starting January 1. Salem Co. rents some of their equipment out to other companies for extra cash flow. They are evaluating three different options to structure their rental agreement in order to earn the largest amount of payments as possible. If Salem receives the rental payments of $15,000 for the next five years on each January 1 instead, at 7% compounded annually, how much is that worth today?

Salem Co. has a year-end of December 31 and they are evaluating the cash flows of some potential investments/projects they are considering for their next fiscal year, starting January 1. Salem Co. rents some of their equipment out to other companies for extra cash flow. They are evaluating three different options to structure their rental agreement in order to earn the largest amount of payments as possible. If Salem receives the rental payments of $15,000 for the next five years on each January 1 instead, at 7% compounded annually, how much is that worth today?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

The owner of a ski resort estimates that a new 4-person ski lift will cost $4,000,000. The owner begins making payments on March 1 and every three months thereafter for 5 years into an account that earns 5% annual interest compounded quarterly. What payment amount must the owner make to have the cost of the ski lift in 5 years? (Round your answer to the nearest cent.)
A land surveyor just starting in private practice needs a van to carry crew and equipment. He can lease a used van for $3,000 per year, paid at the beginning of each year, in which case maintenance is provided. Alternatively, he can buy a used van for $7,000 and pay for maintenance himself. He expects to keep the van 3 years at which time he could sell it for $1,500. What is the most he should pay for uniform annual maintenance to make it worthwhile buying the van instead of leasing it if his i=20%? $821.50 $425.65 $687.50 $958.25
Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: A building in which a car wash could be installed is available under a five-year lease at a cost of $3,600 per month. Purchase and installation costs of equipment would total $200,000. In five years the equipment could be sold for about 10% of its original cost. An investment of an additional $5,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. Both a wash and a vacuum service would be offered. Each customer would pay $1.51 for a wash and $.81 for access to a vacuum cleaner. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity. In addition to rent, monthly costs of operation…
Kent Duncan is exploring the possibility of opening a self-service car wash and operating it for the next five years until he retires. He has gathered the following information: A building in which a car wash could be installed is available under a five-year lease at a cost of $3,400 per month. Purchase and installation costs of equipment would total $315,000. In five years the equipment could be sold for about 10% of its original cost. An investment of an additional $2,000 would be required to cover working capital needs for cleaning supplies, change funds, and so forth. After five years, this working capital would be released for investment elsewhere. Both a wash and a vacuum service would be offered. Each customer would pay $1.54 for a wash and $.85 for access to a vacuum cleaner. The only variable costs associated with the operation would be 7.5 cents per wash for water and 10 cents per use of the vacuum for electricity. In addition to rent, monthly costs of operation…
Cool Brews is looking to expand it's brewpub empire with a new location. The building that Cool Brews is considering purchasing requires mortgage financing with $52,500 payments due at the end of each month for the next 15 years. Additionally, the company will pay $7,500 at the beginning of each month for various costs of ownership such as property taxes and insurance. Determine the cost of the building for Cool Brews assuming an applicable interest rate of 7%. There may be up to $2,000 difference due to rounding. Group of answer choices $19,031,605 $6,681,884 $6,705,760 $834,638 $10,800,000
You are an employee of University Consultants, Ltd., and have been given the following assignment. You are to present an investment analysis of a new small residential income-producing property for sale to a potential investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. a. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)?b. What is the first-year debt coverage ratio?c. What is the terminal capitalization rate?d. What is the NPV using a 14 percent discount rate? What does this mean?
Due to a cool spring season, Petra’s pool installation business has not had the sales she anticipated. To generate new business, Petra has decided to offer a deferred payment plan. A customer is interested in a pool installation worth $42,800. If Petra structures the contract to require a $5,000 down payment, followed by 24 equal monthly payments with the first payment due in 6 months from now, how much should those payments be if Petra’s cost of capital is 4.8% compounded monthly?
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,360,000; rents are estimated at $174,080 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 6 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)? d.…
An investor is considering purchasing an office building for $5 million with the intention of renting it out. Six months after purchase the investor will spend $0.5 million on necessary refurbishments and improvements. A tenant has agreed to lease the building in one year's time for 20 years. The tenant will pay an initial rent of $0.75 million per annum payable monthly in advance. The rent will be increased at four-yearly intervals at a rate of 2.0% per annum compound. It has further been agreed that at the end of the lease period the tenant will buy the building from the investor for $10 million. Which of the following is the accumulated profit the investor will have made at the end of the term using a rate of return on its investment of 6.0% per annum effective? O $22,889,114.62 O $23,120,505.81 O $23,180,097.78 O $23,275,395.38 O $23,413,623.89 O $23,430,787.98 O $23,569,942.54 O $23,586,683.6 O $23,726,768.86 O $23,785,620.07
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,290,000; rents are estimated at $165,120 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 7 percent interest for 30 years (total annual payments will be monthly payments × 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? Answer: 1.33 b. What is the terminal capitalization rate? c. What is the investor’s expected before-tax internal rate of return on equity invested…
You are an employee of University Consultants, Limited, and have been given the following assignment. You are to present an investment analysis of a small retail income-producing property for sale to a potential investor. The asking price for the property is $1,280,000; rents are estimated at $163,840 during the first year and are expected to grow at 2.5 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 8 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. Required: a. What is the first-year debt coverage ratio? b. What is the terminal capitalization rate? c. What is the investor's expected before-tax internal rate of return on equity invested (BTIRR)? d. What is…
Miss Clare Jarrett just closed a loan of $400 000 to assist with the purchase of equipment and fixtures for her small business. This loan will be repaid in five equal annual end-of-year instalments at an interest rate of 8% compounded annually. Complete the following: Determine the yearly payment Prepare an amortisation schedule What is the loan balance just after the end of year three? How much interest expense will Clare pay over the life of the loan? What would be the effective rate of interest if interest were to be compounded quarterly? Semi-annually?