Question
You must decide whether to sell your building or rent it to one or more third parties. The potential buyers are awaiting your response so
You must decide whether to sell your building or rent it to one or more third parties. The potential buyers are awaiting your response so that the deal can go to closing. Option 1: $1,000,000 in cash today; Option 2: $750,000 in cash today, and $350,000 at the end of year three; Option 3: A new tenant will lease the building immediately (no signed lease) and will pay $175,000 in annual rent to you for the next 10 years. Option 4: You will subdivide the space. A new tenant will lease the building immediately (no signed lease) and will pay $110,000 in annual rent for 10 years. In year 4, a second tenant (no signed lease) will begin paying an annual rent of $100,000 through year 10. In year 8, a third tenant (no signed lease) will begin paying an annual rent of $80,000 through year 10. The standard lease includes a clause to extend leases for additional terms. Required: Provide a value for each Option 2 4. Clearly, a state which option you will accept and thoroughly explain why you have chosen that option. In making your selection, it may be helpful to explain why you have not chosen the other options. The company has determined a 10% Cost of Capital.
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