comprehensive problem. About present value. You must no do a hard copy but use formulas to answer the questions.

Net Present Value Analysis of a Lease or Buy Decision Faster Fashion Stores, Inc., owns a nationwide chain of supermarkets. The company is going to open anothe a suitable building site has been located in an attractive and rapidly growing area. In discussing how the com the desired building and other facilities needed to open the new store, The Dude Watkins, the company's vice charge of sales, stated, \"I know most of our competitors are starting to lease facilities rather than buy, but I ju economics of it. Our development people tell me that we can buy the building site, put a building on it, and ge fixtures we need for just $850,000. They also say that property taxes, insurance, and repairs would run $20,0 you figure that we plan to keep a site for 18 years, that's a total cost of $1,210,000. But then when you realize will be worth at least a half million in 18 years, that's a net cost to us of only $710,000. What would it cost to l property?\" \"I understand that Grate Insurance Company is willing to purchase the building site, construct a building and our specifications, and then lease the facility to us for 18 years at an annual lease payment of $120,000,\" rep Garnisher Coleman, the company's executive vice president. \"That's just my point,\" said The Dude. \"At $120,000 a year, it would cost us a cool $2,160,000 over the 18 yea times what it would cost to buy, and what would we have left at the end? Nothing! The building would belong company!\" \"You're overlooking a few things,\" replied Wage Garnisher. \"For one thing, the treasurer's office says that we c to put $350,000 down if we buy the property, and then we would have to pay the other $500,000 off over four $175,000 a year. So there would be some interest involved on the purchase side that you haven't figured in.\" \"But that little bit of interest is nothing compared to over 2 million bucks for leasing,\" said The Dude. \"Also, if w understand we would have to put up an $8,000 security deposit that we wouldn't get back until the end. And b would still have to pay all the yearly repairs and maintenance costs just like we owned the property. No wond insurance companies are so rich if they can swing deals like this.\" \"Well, I'll admit that I don't have all the figures sorted out yet,\" replied Wage Garnisher. \"But I do have the ope breakdown for the building, which includes $7,500 annually for property taxes, $8,000 for insurance, and $4,5 and maintenance. If we lease, Grate will handle its own insurance costs and of course the owner will have to taxes. I'll put all this together and see if leasing makes any sense with our required rate of return of 16%. The a presentation and recommendation in the executive committee meeting tomorrow. Let's see, development s payment would be due now and the remaining ones due in years 1-17. Development also said that this store a net cash inflow that's well above the average for our stores.\" Required: (Ignore income taxes.) 1 committee. Enter your conclusion here 2 value? Enter your conclusion here Enter your conclusion here mpany is going to open another store soon, and ea. In discussing how the company can acquire e Watkins, the company's vice president in cilities rather than buy, but I just can't see the ite, put a building on it, and get all the store e, and repairs would run $20,000 a year. When 000. But then when you realize that the property 10,000. What would it cost to lease the site, construct a building and install fixtures to se payment of $120,000,\" replied Wage ool $2,160,000 over the 18 years. That's three g! The building would belong to the insurance reasurer's office says that we could only afford e other $500,000 off over four years at e that you haven't figured in.\" ing,\" said The Dude. \"Also, if we lease I 't get back until the end. And besides that, we owned the property. No wonder those rnisher. \"But I do have the operating cost $8,000 for insurance, and $4,500 for repairs course the owner will have to pay the property red rate of return of 16%. The president wants row. Let's see, development said the first lease pment also said that this store should generate Cash Flow Description Store Site Cost Cash Flow Amount Periods 850,000.00 1 Annual Property Taxes 7,500.00 1 through 18 Annual Insurance Cost 8,000.00 1 through 4 Annual Repairs Annual Property Taxes, Insurance, and Repairs 4,500.00 18 20,000.00 2 Site Salvage Value 500,000.00 3 Annual Lease Payments 120,000.00 4 Loan Downpayment 350,000.00 1 through 17 Annual Loan Payments 175,000.00 0 Life of the Loan (Years) 4.00 Life of the Store (Years) 18.00 Lease Security Deposit 8,000.00 Required Rate of Return 16.00% To Buy Period Cash Flow Description Cash Flow Amount Present Value Factor Net Present Value To Lease Period Cash Flow Description Cash Flow Amount Present Value Factor Net Present Value Cash Flow Present Value Cash Flow Present Value Present Value of a Dollar Period Present Value of Annuity of a Dollar 16.00% Period 16.00% 1 0.8620689655 1 0.8620689655 2 0.7431629013 2 1.6052318668 3 0.6406576735 3 2.2458895404 4 0.5522910979 4 2.7981806382 5 0.4761130154 5 3.2742936537 6 0.4104422547 6 3.6847359083 7 0.3538295299 7 4.0385654382 8 0.3050254568 8 4.343590895 9 0.26295298 9 4.606543875 10 0.2266836034 10 4.8332274785 11 0.1954168995 11 5.028644378 12 0.1684628444 12 5.1971072224 13 0.14522659 13 5.3423338124 14 0.1251953362 14 5.4675291486 15 0.107927014 15 5.5754561626 16 0.0930405293 16 5.6684966919 17 18 0.0802073528 0.0691442697 17 18 5.7487040447 5.8178483144