I need to turn this into a spreadsheet but I am unsure where to start...

1. Threshold has no debt but the lease payments for the First Union Title Series can be functionally considered debt. The amount of debt is the present value of the lease payments.
2. Th question is: Is this just a 5-year lease or should it be thought of as a perpetual lease?
3. 5-year lease:
   1. The lease payments start at $200,000 in 2001 and end at $260,000 in 2005.
   2. So you can make a guess that the lease payments in 2002, 2003, and 2004 would be $215,000, $230,000, and 245,000, respectively.
   3. If the cost of capital, k, is 13.1%, then what is the Present Value of the 5 lease payments?
   4. This would be the Debt under the 5-year lease scenario.
4. Perpetual lease: Given that this is probably not a 1-time 5-year lease, but is renewable at the end of its term, perpetually, then what is the PV of the lease? To find out, we need to know what the annually compounded growth rate is of the lease payments.
   1. CAGR: Lease payment 1 = $200K, Lease Payment 5 = $260K
   2. That means 4 years of growth in lease payments (5 payments, 4 years of growth)
   3. Use the formula: FV = PV x (1 + g)^4 and solve for g.
   4. Then, you can find the PV of a growing perpetuity as Lease payment in 2001 / (k g)
5. So, the PV of the lease (probably perpetual) is the Debt. What about the E, or equity?
6. The book value of equity is $344,000.
7. But, lets think about Market Value of Equity.
8. Keeping it simple: Consider MAGZ as the best comparable company from Ex. 14.
9. MAGZ comparable valuation ratios
   1. Price/Book value = about 5.00
   2. Price/Earnings = about 30.
   3. Ignore the EBITDA multiple (keeping it simple)
10. Estimated valuation for Threshold Sports
    1. Thresholds BV equity of $344,000 x P/BV of 5.00.
    2. Thresholds Earnings of $50,000 x P/E of 30 (keeping it simple)
    3. Average the 2 estimates to get 1 estimate.
11. Now, we have D (PV of perpetual lease payments) and we have average estimate of E (market value estimate).
12. Compute D / E. Does this seem high or low just based on your intuition?