Jason Halabi is a financial executive with Blossom Enterprises. Although Jason has not had any formal training in finance or

accounting, he has a good sense for numbers and has helped the company grow from a very small company $($ $$600,000$ in sales$)$ to a

large operation $($$$54$ million in sales$).$ With the business growing steadily, however, the company needs to make a number of difficult

financial decisions in which Jason feels a little over his head. He therefore has decided to hire a new employee with numbers expertise

to help him. As a basis for determining whom to employ, he has decided to ask each prospective employee to prepare answers to

questions relating to situations he has encountered recently.

The following are the facts for the first question asked of prospective employees:

In $2022,$ Blossom Enterprises negotiated and closed a lease contract for newly constructed truck terminals and freight storage

facilities. On January $1,2023,$ Blossom took possession of the leased property. The $20-$year lease is effective for the period January $1,$

$2023,$ through December $31,2042.$ Advance rental payments of $$960,000$ are payable to the lessor $($owner of facilities$)$ on January $1$

of each of the first $10$ years of the lease term. Advance payments of $$480,000$ are due on January $1$ for each of the last $10$ years of the

lease term. Blossom has an option to purchase all the leased facilities for $$1$ on December $31,2042.$ At the time the lease was

negotiated, the fair value of the truck terminals and freight storage facilities was approximately $$8\mathrm{.}64$ million. If the company had

borrowed the money to purchase the facilities, it would have had to pay $12\%$ interest. Should the company have purchased rather than

leased the facilities?

$($a$)$

Calculate the present value of the payments required of Blossom under the lease agreement. $($For calculation purposes, use $5$

decimal places as displayed in the factor table provided. Round answers to $0$ decimal places, e$.$g$.5,275.)$

Click here to view the factor table PRESENT VALUE OF $1.$

Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF $1.$

Follow these steps:

Calculate the present value of the future cash flows for the advance rental payments of

$$960,000$ for the period from January $1,2023,$ through December $31,2032.$ Hint: If

using factor tables, because the lease payments are due at the beginning of each year,

use the present value tables for nine years and add the first payment of January $1.$

$2023,$ in your calculation.

Calculate the present value of the future cash flows for the advance rental payments of

$$480,000$ for the $10-$year period beginning January $1,2033.$ Hint: If using factor tables,

as in the first step, use the present value table for $10$ years for the present value at

January $1,2032.$

Take the calculation result of step $2$ and arrive at the present value of that amount at

January $1,2023,$ by using nine years in your discount calculation.

Add the result of the first and third steps to arrive at the total cost of leasing.