Sharon Evans who graduated from the local university 3

years #6146
Sharon Evans, who graduated from the local university 3 years ago with a degree in marketing,
is manager of Ann Naylor's store in the Southwest Mall. Sharon's store has 5 years remaining
on its lease. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1
month. The mall's owner plans to sell the property in a year and wants rents at that time to be
high so the property will appear more valuable. Therefore, Sharon has been offered a "great
deal" (owner's words) on a new 5-year lease. The new lease calls for zero rent for 9 months,
then payments of $2,600 per month for the next 51 months. The lease cannot be broken, and
Ann Naylor Corporation's cost of capital is 12 percent (or 1 percent per month). Sharon must
make a decision.A good one could help her career and move her up in management, but a bad
one could hurt her prospects for promotion.a. Should Sharon accept the new lease? b. Suppose
Sharon decided to bargain with the mall's owner over the new lease payment. What new lease
payment would make Sharon indifferent between the new and the old leases? c. Sharon is not
sure of the 12 percent cost of capital-it could be higher or lower. At what nominal cost of capital
would Sharon be indifferent between the two leases?View Solution:
Sharon Evans who graduated from the local university 3 years

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