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Problem 15.7 Holly Molseed, owner of Holly's Hotel, desires to know which 5-year lease arrangement is most desirable. Her options are as follows: 1. Fixed
Problem 15.7 Holly Molseed, owner of Holly's Hotel, desires to know which 5-year lease arrangement is most desirable. Her options are as follows: 1. Fixed rent of $11,000 per month, due at the beginning of each month 2. Variable rent of 5% of sales, due at the end of each month 3. Fixed rent of $5,500 per month (due at the beginning of each month) and 2.5% of sales (due at the end of each year) Holly projects the hotel's sales for the next 5 years as follows: Assume monthly sales during a year are the same. Holly's cost of capital is 12%. Required: Identify which rental arrangement is most desirable and explain why
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