Question
A business has the option to enter into a 10-year lease of a building to expand their operations. The building will require a significant investment
A business has the option to enter into a 10-year lease of a building to expand their operations. The building will require a significant investment to prepare it for use. The estimated cost of the investment is $125,000. The business will take on debt and has a cost of capital of 7.5%. For the first nine years, the business expects net cash flows to be +$20,000. In year 10, the lease will expire and the business will need to vacate. The estimate is that the net cash flow in year 10 will be -$5,000.
Calculate the 1)Net Present Value, 2)Internal Rate of Return, 3)Modified Internal Rate of Return, 4)Profitability Index, 5)Payback, and 6)Discounted Payback.
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