A company is considering two possible locations to lease for their head offices. They have been...

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A company is considering two possible locations to lease for their head offices. They have been presented with tow leases by the respective landlords and they need to consider the best option. The details of the two leases are as follows: Lease term Rent Rent escalation rate Operating costs Operating cost escalation rate Concession Lease A 5 years R1800/m² (i) (ii) (iii) (iv) 3% per annum R180/m² 5% Lease B 7 years R2040/m² 2% per annum R240/m² 5% 1 year rent free 2 years rent free Assuming that the tenant could borrow on a secured loan at 7% and at 8% on an unsecured loan, answer the following questions: Calculate the net present value and effective rent of lease A (7.5 marks) Calculate the net present value and effective rent of lease B (7.5 marks) Which lease would you advise the tenant to opt for and why? (2 marks) What other qualitative factors would you advise the tenant to consider when choosing between the two leases/premises that may not have been considered in your calculations above? (3 marks) A company is considering two possible locations to lease for their head offices. They have been presented with tow leases by the respective landlords and they need to consider the best option. The details of the two leases are as follows: Lease term Rent Rent escalation rate Operating costs Operating cost escalation rate Concession Lease A 5 years R1800/m² (i) (ii) (iii) (iv) 3% per annum R180/m² 5% Lease B 7 years R2040/m² 2% per annum R240/m² 5% 1 year rent free 2 years rent free Assuming that the tenant could borrow on a secured loan at 7% and at 8% on an unsecured loan, answer the following questions: Calculate the net present value and effective rent of lease A (7.5 marks) Calculate the net present value and effective rent of lease B (7.5 marks) Which lease would you advise the tenant to opt for and why? (2 marks) What other qualitative factors would you advise the tenant to consider when choosing between the two leases/premises that may not have been considered in your calculations above? (3 marks)

Answer rating: 100% (QA)

To calculate the net present value NPV and effective rent of each lease we need to discount the cash flows using the appropriate discount rate Lets calculate the NPV and effective rent for Lease A and ... View the full answer