The surgery center’s building in downtown Charleston has an attached garage, but CPSC employees and patients use only about 50 percent of the garage’s space. Meredith is under discussions to lease the unneeded garage space for five years to a local business. The lessee’s cash flow needs can be accommodated by allowing the lease payments to vary as follows:

a. What is the present value of the proposed lease payments at Year 0 if the required rate of return is 10 percent annually? (Hint: Use Excel’s “NPV” function.)

b. If the proposed lease payments are invested at 10 percent annually, what will the future value of the payments accumulate to at the end of Year 5?

4. Time value analysis involves using a periodic rate to either discount or compound cash flows. How do we determine the appropriate periodic rate to use?

Transcribed Image Text:

End of Year Net Cash Flow Year 1 $25,000 Year 2 $30,000 Year 3 $35,000 Year 4 $40,000 Year 5 $25,000 End of Year Net Cash Flow Year 1 $25,000 Year 2 $30,000 Year 3 $35,000 Year 4 $40,000 Year 5 $25,000

Answer rating: 100% (QA)

3 y ear 1 25000 4 ear 4 d ear 230 00 ear 5250 y e... View the full answer