An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1 step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year. If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or Tls. What would be the net present value of this proposal to ATRIUM? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) (Round your answer to 2 decimal places.) Present value of cash flows Required C
An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for 20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year beginning one year from now. Required: a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1 step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What would be the present value of this alternative to ATRIUM? c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year. If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or Tls. What would be the net present value of this proposal to ATRIUM? Complete this question by entering your answers in the tabs below. Required A Required B What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) (Round your answer to 2 decimal places.) Present value of cash flows Required C
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 1P
Related questions
Question
![An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for
20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year
beginning one year from now.
Required:
a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.)
b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1
step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What
would be the present value of this alternative to ATRIUM?
c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would
require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year.
If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or Tls. What would be the net present value of this
proposal to ATRIUM?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) (Round your
answer to 2 decimal places.)
Present value of cash flows](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feb2e15ef-8640-49b0-a75f-b139085238e1%2Fb32f4790-cde5-4eb7-9450-52ee2e1f60b7%2F3xd0afr_processed.png&w=3840&q=75)
Transcribed Image Text:An owner of the ATRIUM Tower Office Building is currently negotiating a five-year lease with ACME Consolidated Corporation for
20,000 rentable square feet of office space. ACME would like a base rent of $11 per square foot (PSF) with step-ups of $1 per year
beginning one year from now.
Required:
a. What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.)
b. The owner of ATRIUM believes that base rent of $11 PSF in (a) is too low and wants to raise that amount to $15 with the same $1
step-ups. However, now ATRIUM would provide ACME a $53,000 moving allowance and $130,000 in tenant improvements (Tls). What
would be the present value of this alternative to ATRIUM?
c. ACME informs ATRIUM that it is willing to consider a $14 PSF with the $1 annual stepups. However, under this proposal, ACME would
require ATRIUM to buyout the one year remaining on its existing lease in another building. That lease is $6 PSF for 20,000 SF per year.
If ATRIUM buys out ACME's old lease, ACME will not require a moving allowance or Tls. What would be the net present value of this
proposal to ATRIUM?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Required C
What is the present value of cash flows to ATRIUM under the above lease terms? (Assume a 10% discount rate.) (Round your
answer to 2 decimal places.)
Present value of cash flows
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Step 1: Present value
VIEWStep 2: a. Computation of present value of cash flows to ATRIUM @ discounting rate of 10%.
VIEWStep 3: b. Computation of present value of cash flows to ATRIUM if the base rent is increased to $15
VIEWStep 4: c. Computation of net present value of cash flows to ATRIUM upon acceptance of proposal
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