You are starting a business and have signed a rental lease for an office in Santa Monica. This office lease is for four years with an annual rent of $24,000 per year, paid at the beginning of each year of the lease. However, just before you pay your first rent, the property owner decides he wants to use the space for another purpose and proposes to buy back the lease from you. The rent for any other similar space you can find for your business is $30,000 per year, also paid at the beginning of the year. What would be the minimum compensation that you would ask from the property owner to give up your original lease? Calculate the numerical answer. Assume the discount interest rate is 6%.

You are starting a business and have signed a rental lease for an office in Santa Monica. This office lease is for four years with an annual rent of $24,000 per year, paid at the beginning of each year of the lease. However, just before you pay your first rent, the property owner decides he wants to use the space for another purpose and proposes to buy back the lease from you. The rent for any other similar space you can find for your business is $30,000 per year, also paid at the beginning of the year. What would be the minimum compensation that you would ask from the property owner to give up your original lease? Calculate the numerical answer. Assume the discount interest rate is 6%.

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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You own a house that you rent for $1,100 per month. The maintenance expenses on the house average $200 per month. The house cost $219,000 when you purchased it 4 years ago. A recent appraisal on the house valued it at $241,000. If you sell the house you will incur $19,280 in real estate fees. The annual property taxes are $2,500. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office?
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