Here are the answers: The net present value (NPV) of the relevant cash flows associated with the lease option is: Initial investment: \$($-350$,$000$) (transforming the leased space into an ice cream shop) Annual rent: \$($-36$,$000$) \times $3$.$433$ (discount factor for $5$ years at $14$\% discount rate) = \$($-123$,$948$) Total NPV: \$($-350$,$000$) - \$($-123$,$948$) = \$($-473$,$948$) The NPV of the relevant cash flows associated with the buy-and-build option is: Initial investment: \$($-1$,$200$,$000$) (land, building, and paved parking lot) Annual excess operating costs: \$($-15$,$000$) \times $3$.$433$ (discount factor for $5$ years at $14$\% discount rate) = \$($-51$,$495$) Terminal value: \$$1$,$300$,$000$ / ($1$ + $0$.$14$)^$5$ = \$$833$,$581$ (present value of the market value at the end of $5$ years) Total NPV: \$($-1$,$200$,$000$) - \$($-51$,$495$) + \$$833$,$581$ = \$($-417$,$914$) To make Annie's indifferent between the lease and buy-and-build alternatives, the market value of the commercial property at the end of $5$ years would need to be: \$$1$,$200$,$000$ (initial investment) + \$$51$,$495$ (excess operating costs) - \$$350$,$000$ (initial investment for lease option) = \$$901$,$495$ Then, discount this amount to its present value using the $14$\% discount rate and $5$-year time horizon: \$$901$,$495$ / ($1$ + $0$.$14$)^$5$ = \$$574$,$939$ So, the market value of the commercial property at the end of $5$ years would need to be at least \$$574$,$939$ for Annie's to be indifferent between the lease and buy-and-build options.

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Q. Here are the answers: The net present value (NPV) of the relevant cash flows associated with the lease option is: Initial investment: \$($-350$,$000$) (transforming the leased space into an ice cream shop) Annual rent: \$($-36$,$000$) \times $3$.$433$ (discount factor for $5$ years at $14$\% discount rate) = \$($-123$,$948$) Total NPV: \$($-350$,$000$) - \$($-123$,$948$) = \$($-473$,$948$) The NPV of the relevant cash flows associated with the buy-and-build option is: Initial investment: \$($-1$,$200$,$000$) (land, building, and paved parking lot) Annual excess operating costs: \$($-15$,$000$) \times $3$.$433$ (discount factor for $5$ years at $14$\% discount rate) = \$($-51$,$495$) Terminal value: \$$1$,$300$,$000$ / ($1$ + $0$.$14$)^$5$ = \$$833$,$581$ (present value of the market value at the end of $5$ years) Total NPV: \$($-1$,$200$,$000$) - \$($-51$,$495$) + \$$833$,$581$ = \$($-417$,$914$) To make Annie's indifferent between the lease and buy-and-build alternatives, the market value of the commercial property at the end of $5$ years would need to be: \$$1$,$200$,$000$ (initial investment) + \$$51$,$495$ (excess operating costs) - \$$350$,$000$ (initial investment for lease option) = \$$901$,$495$ Then, discount this amount to its present value using the $14$\% discount rate and $5$-year time horizon: \$$901$,$495$ / ($1$ + $0$.$14$)^$5$ = \$$574$,$939$ So, the market value of the commercial property at the end of $5$ years would need to be at least \$$574$,$939$ for Annie's to be indifferent between the lease and buy-and-build options.

Calculate NPV Lease Option: Calculate the NPV for the lease option. $\newline$ Initial investment: -\$$350, $000$ ＂). $\newline$ Annual rent for $5$ years at $14$ % discount rate: -\$\(36, $000$ \times $3$ . $433$ = -\$\(123$,$948$＂).$\newline$Total NPV for lease option: $-\$\(350$,$000$ - \$$123$,$948$ = -\$$473$,$948$＂).
Calculate NPV Buy-and-Build Option: Calculate the NPV for the buy-and-build option.$\newline$Initial investment: \$$1$,$200$,$000$.$\newline$Annual excess operating costs for $5$ years at $14$% discount rate: \$$15$,$000$ $\times$ $3$.$433$ = \$$51$,$495$.$\newline$Present value of terminal value: \$$1$,$300$,$000$ / $(1 + 0.14)^5$ = \$$833$,$581$.$\newline$Total NPV for buy-and-build option: \$$1$,$200$,$000$ + \$$51$,$495$ + \$$833$,$581$ = \$$417$,$914$.
Determine Market Value for Indifference: Determine the market value needed at the end of $5$ years for indifference.$\newline$Sum of initial investment and excess operating costs for buy-and-build: $\$1,200,000 + \$51,495 = \$1,251,495$.$\newline$Subtract initial investment for lease option: $\$1,251,495 - \$350,000 = \$901,495$.$\newline$Discount this amount to present value at $14$% for $5$ years: $\$901,495 / (1 + 0.14)^5$.