Purchase Solution

# Rent and Interest Calculations for a Corporation

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1. You can choose between the following rent payments:
(a) A lump sum cash payment of \$100,000

(b) 10 annual payments of \$12,000 each, the first occurring immediately.

(c) 120 monthly payments of \$1,200 each. the first occurring immediately. (Friendly suggestion: this is a lot easier to calculate on a computer spreadsheet.)

(d) Which rental payment scheme would you choose if the interest rate was an effective 5% per year?

(e) Spreadsheet question: At what interest rate would you be indifferent between the first and the second choice above? (Hint: Graph the NPV of the second project as a function of the interest rate.)

2. A project costs \$19,000 and promises the followig cash flows: Year 1 \$12,500 Year 2 \$6,000 and year 3 \$3,000.
The appropriate discount rate is %15 per annum. Should you invest in this project?

3. Which of the following are good candidates for ascertaining the value effects with an event study, and why?

(a) An acquirer wants to buy the firm.
(b) The CEO dies.
(c) The CEO ages.
(d) Positive earnings surprise at the annual meetings.
(e) Purchase of a new machine.
(f) A law is passed to force the company to reduce its emissions.

Please answer the 3 questions completely and clearly so I can understand the process,(step by step).

##### Solution Summary

The expert examines rent and interest calculations for a corporation. The payment which is the most effective is given.

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• MCom, Annamalai University
• IATA, International Air Transport Association
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