The ABC Corporation is considering opening an office in a new market area that would allow it to increase its annual sales by $$2\mathrm{.}6$

million. The cost of goods sold is estimated to be $40$ percent of sales, and corporate overhead would increase by $$307,500,$ not

including the cost of either acquiring or leasing office space. The corporation will have to invest $$2\mathrm{.}6$ million in office furniture, office

equipment, and other up$-$front costs associated with opening the new office before considering the costs of owning or leasing the

office space.

A small office building could be purchased for sole use by the corporation at a total price of $$6\mathrm{.}0$ million, of which $$900,000$ of the

purchase price would represent land value, and $$5\mathrm{.}1$ million would represent building value. The cost of the building would be

depreciated over $39$ years. The corporation is in a $21$ percent tax bracket. An investor is willing to purchase the same building and

lease it to the corporation for $$675,000$ per year for a term of $15$ years, with the corporation paying all real estate operating expenses

$($absolute net lease$).$ Real estate operating expenses are estimated to be $50$ percent of the lease payments. Estimates are that the

property value will increase over the $15-$year lease term for a sale price of $$6\mathrm{.}5$ million at the end of the $15$ years. If the property is

purchased, it would be financed with an interest$-$only mortgage for $$3,300,000$ at an interest rate of $4\mathrm{.}5$ percent with a balloon

payment due after $15$ years.

Required:

a$.$ What is the return from opening the office building under the assumption that it is leased?

b$.$ What is the return from opening the office building under the assumption that it is owned?

c$.$ What is the return on the incremental cash flow from owning versus leasing?

Complete this question by entering your answers in the tabs below.

What is the return from opening the office building under the assumption that it is leased? $($Do not round intermediate

calculations. Round your final answer to $2$ decimal places.$)$

$($Every answers are $\%)$