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1 10-15 Sharon Evans, who graduated from the local university 3 years ago with a degree in market- NPV and IRR ing, is manager of Ann Naylor's store in the Southwest Mall. Sharon's store has 5 yearskife . maining on its lease. Rent is $2,000 per month, 60 payments remain, and the next payment is due in i month. The mall's owner plans to sell the property in a year and wants rents at that time to be high so the property will appear more valuable. Therefore, Sharon has been offered a "great deal (owner's words) on a new 5-year lease. The new lease calls for zero rent for 9 months, then payments of $2,600 per month for the next 51 months. The lease cannot be broken, and Ann Naylor Corporation's cost of capital is 12 percent (or 1 percent per month) . Sharon must make a decision. A good one could help her career and move her up in ment, but a bad one could hurt her prospects for promotion. a. Should Sharon accept the new lease? (Hint: Be sure to use 1 percent per month.) b. Suppose Sharon decided to bargain with the mall's owner over the new lease payment What new lease payment would make Sharon indifferent between the new and the old leases? (Hint: Find FV of the first 9 payments at t = 9, then treat this as the PV of a 51- period annuity whose payments represent the incremental rent during Months 10 to 60.) c. Sharon is not sure of the 12 percent cost of capitalit could be higher or lower. At what nom- inal cost of capital would Sharon be indifferent between the two leases? (Hint: Calculate the differences between the two payment streams, and find the IRR of this difference stream.) manage