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Real estate buy versus lease

Below is a real estate exercise that calls for a comparison between buying and leasing a property. I am not a real estate major and I do not understand what I am supposed to do with that $100,000 stated in the beginning. I am looking for help in devising a way that the cash flows can be compared. I have never worked with a lease before and do not know how to devise the cash flows

Acme Corporation needs a new facility with $100,000 in specialized leasehold improvements.

They can buy the property for $10,000,000 with 25% down and a loan at 6%, 25 yrs. The property is expected to appreciate at 5% per year.

They can lease the property for $65,000/mo. For 5 years.

Assume a triple net lease.

You have been retained to advise Acme on how to proceed. Based on cost of funds alone, what is your expert recommendation?

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The $100,000 in leasehold improvements Acme will have to pay whether they buy the property or lease the property. A triple net lease is where the lessee pays the principle, interest, and taxes. The taxes would be paid in both ...

Solution Summary

This solution considers Acme Corporation and whether it's better to buy or lease.