You may use your financial calculator or excel for calculations but be sure to show your work (i.e. rate, periods, payments, etc.). For the amortization schedules be sure to print the schedule so all columns fit on one page.

2. Malcolm Mitchell is the sole proprietor of Mitchell Enterprises. He is exploring the option of going public because his company is growing exponentially. The consulting firm that is reviewing her financials has questioned whether Mitchells CFO is technically competent enough to be the CFO of a publically traded company, as they believe he made several bad financial decisions. The two situations, which the firm brings to Malcoms attention, are as follows:

a) Mitchell purchased the building in which their corporate office is housed on 1/1/10 for $7,800,000. They put down $2,000,000 cash and had to borrow the remaining amount at 8% over a 20-year term. At the time of the purchase, they had the option to lease the building. The 20-year lease would begin on 1/1/10, and called for payments of $600,000 beginning on that date for the first 10 years and payments of $500,000 beginning on 1/1/20 for the remaining 10 years of the lease. Mitchell had the option to purchase the building for $1 on December 31, 2029 at the end of the lease. Did the CFO make the right decision by purchasing the building? Why or why not? Show your work.

b) This year, the company sold land for a non-interest bearing note. The note calls for annual payments of $10,000 for 4 years. The payments will begin one year from the date of the sale. An appropriate rate of interest for this type of note is 6%. The land had an original purchase cost of $25,000. The CFO told the accounting department to record the sale as follows:

(debit) Notes Receivable $40,000

(credit) Land $25,000

(credit) Gain on Sale of Land $15,000

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