For each lease structure below, calculate the effective net rent to the owner (after expenses) for each lease alternative using a 10 percent discount rate. Calculate each for years 1-5. (HINT: Below each scenario, set up the net rent to be realized in each year and find the present value of the net rental income. Then calculate the equivalent level annuity with the same present value. This is the net effective rent. The net effective rent amounts to an annualized equivalent of the present value). Net lease with steps Net lease with CPI adjustments Gross Lease Rent will be $15 per square foot for the first year and will increase by $1.50 per square foot each year until the end of the lease. All operating expenses will be paid by the tenant. Calculate for years 1-5. The rent will be $16 per square foot for the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 3% per year. Calculate for years 1-5. Rent will be $30 per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 the first year and increase by $1 per year thereafter. Calculate for years 1-5. Gross lease with expense stop and CPI Rent will be $22 the first year and increase by the full amount of any change in CPI after adjustment the first year with an expense stop at $9 per square foot. The CPI and operating expenses are assumed to change by the same amount as outlined above. Calculate for years 1-5.
For each lease structure below, calculate the effective net rent to the owner (after expenses) for each lease alternative using a 10 percent discount rate. Calculate each for years 1-5. (HINT: Below each scenario, set up the net rent to be realized in each year and find the present value of the net rental income. Then calculate the equivalent level annuity with the same present value. This is the net effective rent. The net effective rent amounts to an annualized equivalent of the present value). Net lease with steps Net lease with CPI adjustments Gross Lease Rent will be $15 per square foot for the first year and will increase by $1.50 per square foot each year until the end of the lease. All operating expenses will be paid by the tenant. Calculate for years 1-5. The rent will be $16 per square foot for the first year. After the first year, the rent will be increased by the amount of any increase in the CPI. The CPI is expected to increase 3% per year. Calculate for years 1-5. Rent will be $30 per square foot each year with the lessor responsible for payment of all operating expenses. Expenses are estimated to be $9 the first year and increase by $1 per year thereafter. Calculate for years 1-5. Gross lease with expense stop and CPI Rent will be $22 the first year and increase by the full amount of any change in CPI after adjustment the first year with an expense stop at $9 per square foot. The CPI and operating expenses are assumed to change by the same amount as outlined above. Calculate for years 1-5.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:For each lease structure below, calculate the effective net rent to the owner (after expenses) for each lease alternative using a 10 percent
discount rate. Calculate each for years 1-5.
(HINT: Below each scenario, set up the net rent to be realized in each year and find the present value of the net rental income. Then calculate the
equivalent level annuity with the same present value. This is the net effective rent. The net effective rent amounts to an annualized equivalent of the
present value).
Net lease with steps
Net lease with CPI adjustments
Gross Lease
Gross lease with expense stop and CPI
adjustment
Rent will be $15 per square foot for the first year and will increase by $1.50 per square foot
each year until the end of the lease. All operating expenses will be paid by the tenant.
Calculate for years 1-5.
The rent will be $16 per square foot for the first year. After the first year, the rent will be
increased by the amount of any increase in the CPI. The CPI is expected to increase 3% per
year. Calculate for years 1-5.
Rent will be $30 per square foot each year with the lessor responsible for payment of all
operating expenses. Expenses are estimated to be $9 the first year and increase by $1 per
year thereafter. Calculate for years 1-5.
Rent will be $22 the first year and increase by the full amount of any change in CPI after
the first year with an expense stop at $9 per square foot. The CPI and operating expenses
are assumed to change by the same amount as outlined above. Calculate for years 1-5.
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Step 1: Formula.
VIEWStep 2: Computation of present value annuity factor (10%,5years) .
VIEWStep 3: Computation of effective net rent to owner for scenario 1 . Net lease with steps.
VIEWStep 4: Computation of effective net rent to owner for scenario 2 .Net lease with CPI adjustments.
VIEWStep 5: Computation of effective net rent to owner for scenario 3. Gross lease.
VIEWStep 6: Computation of effective net rent to owner for scenario 4. Gross lease with expense stop and CPI .
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