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Discounted cash flow topic ,help required

Forums › FIA Forums › Discounted cash flow topic ,help required

  • This topic has 1 reply, 2 voices, and was last updated 11 years ago by AvatarKen Garrett.
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  • April 22, 2015 at 6:48 pm #242223
    Avatarmyacca1990
    Participant
    • Topics: 153
    • Replies: 164
    • ☆☆☆

    Q:X company takes on a five year lease of a building for which it pays $27,200 as a lump sum payment.X company then sub-lets the building for five years at a fixed annual rent,with the rent payable annually in arrears.
    What is the annual rental charge,if the rent is set at a level that will earn a DCF yield of 17% for X company?

    Cumulative discount factor at 17% years 1-4=2.743

    Cumulative discount factor at 17% years 1-5=3.199
    A)$5,440
    B)$8,502
    C)$9,916
    D)$87,013

    According to kaplan the right answer is B but i don,t know how they reached that answer ?

    April 27, 2015 at 10:15 am #242903
    AvatarKen Garrett
    Keymaster
    • Topics: 10
    • Replies: 10657
    • ☆☆☆☆☆

    IRR = 17% (given)

    27200 = Rent x 3.199 [Zero NPV @IRR, by definition]
    Rent = 27200/3.199 = 8,502

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