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anastassius [24]
3 years ago
6

After getting her degree in marketing and working for 5 years for a large department store, Sally started her own specialty shop

in a regional mall. Sally's current lease calls for payments of $1,000 at the end of each month for the next 60 months. Now the landlord offers Sally a new 5-year lease that calls for zero rent for 6 months, then rental payments of $1,050 at the end of each month for the next 54 months. Sally's cost of capital is 11 percent. By what absolute dollar amount would accepting the new lease change Sally's theoretical net worth?
Business
1 answer:
alekssr [168]3 years ago
4 0

Answer:

$3,751.90

Explanation:

we must find the present value of both alternatives

alternative 1, keep paying $1,000 per month for 60 months

present value = monthly payment x PV annuity factor

monthly payment = $1,000

PV annuity factor = [1 - 1/(1 + 0.9167%)⁶⁰ ] / 0.9167% = 45.9136

present value = $1,000 x 45.91361 = $45,991.36

alternative 2, pau $1,050 per month for 54 months starting after 6 months

monthly payment = $1,050

PV annuity factor = [1 - 1/(1 + 0.9167%)⁵⁴ ] / 0.9167% = 42.4406

present value in 6 months = $1,050 x 42.4406 = $44,562.63

present value today = $44,562.63 / 1.055 = $42,239.46

Sally's net worth increases by $45,991.36 - $42,239.46 = $3,751.90

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Answer:

-$ 540

Explanation:

Put Option - provides right to sell share at exercise price on expiry.

As it is an Right not Obligation, Thus, buyer will exercise the right only if he is gaining at expiry and he will gain only if exercise price is higher than spot price at expiry

In this case Exercise Price ($ 35) is lower than the spot price ( $ 36.25) at expiry. Thus he will not execrise the option.

He will lose all what he spend in buying option that is $ 1.35 per share

Thus,

Net profit or loss on this investment = 4 Options * 100 Shares each * Loss of $ 1.35 per Share

Net profit or loss on this investment = 4 * 100 * (-1.35)

Net profit or loss on this investment = -$ 540

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3 years ago
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Answer:

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