Home Depot uses a 150,000 SF building as its retail store. To develop such a property, total costs average around $18,600,000. These properties typically lease for around $15 per foot (absolute net) with roughly $7 per foot in operating expenses (annual expense reimbursement of $1,050,000). For a lease vs. own analysis, assume that Home Depot would either lease or own the property for 20 years, and use a discount rate of 20%. If the company owned the property, it would utilize 80% LTV financing, with an interest rate of 7% and 30-year amortization. In that case, the ADS would be $1,187,964 and the mortgage balance would be $8,526,251. Also assume that the property could be sold for $28,000,000 in 20 years with an equity reversion of $19,473,749.

1. What is the NPV of owning the store?

Equity = 18,600,000 20% = 3,720,000

OE & ADS: PMT = 1,187,964 + 1,050, 000 = 2,237,964

Equity Rev: FV = 19,473,749

PV = (3,720,000)

PV = (10,897,944)

PV =507.954

NPV = (14,109,990)

How do you get the PV values (10,897,944) & 507,954?