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 $$11$ per square foot $($PSF$)$ with step$-$ups of $$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 $$11$ PSF in $($a$)$ is too low and wants to raise that amount to $$15$ with the same $$1$

step$-$ups. However, now ATRIUM would provide ACME a $$53,000$ moving allowance and $$130,000$ 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 $$14$ PSF with the $$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 $$6$ PSF for $20,000$ SF per year.

If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or Tls$.$ What would be the net present value of this

proposal to ATRIUM?

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