What is the least amount of money


Commercial Real Estate Inc. is considering the purchase of a $4 million building. The company will enter into a long-term lease to commercial tenants, with payments made annually. The building will be fully depreciated over 20 years via the straight-line method. In addition, the market value of the building will be zero at that time. The annual lease payments will increase at 3 percent per year. The appropriate discount rate for all cash flows is 12 percent. The corporate tax rate is 34 percent. What is the least amount of money that Commercial Real Estate should ask for the first-year lease payment? Assume that the first lease payment is made immediately after the signing of the contract.

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Finance Basics: What is the least amount of money
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