Question

Department of Ophthalmology wants to open a new office on Long Island. They found a space that needs to be fitted for their needs. The landlord agrees to do the improvements, and charges Ophthalmology monthly in addition to rent for the capital expenditure. The improvement costs $1.4 million. The payment associated with the improvement is $18,000 monthly for 10 years.

A. What is the rate the landlord is charging Ophthalmology?

Answer 1

The rate the landlord is charging Ophthalmology is approximately 0.973% per month.

Step-by-step explanation:

To calculate the rate the landlord is charging Ophthalmology, we can use the formula for Present Value of an Annuity. The Present Value of an Annuity is calculated using the formula:

PV = PMT x ((1 - (1 + r)^-n) / r)

In this case, the improvement costs $1.4 million and the payment associated with the improvement is $18,000 monthly for 10 years. By substituting the values into the formula, we can solve for the rate (r) the landlord is charging Ophthalmology.

Let's substitute the given values into the formula:

PV = $1,400,000

PMT = $18,000

n = 10 * 12 = 120 (since there are 12 months in a year)

Now we can solve for r.

By rearranging the formula and solving for r, we find that the rate the landlord is charging Ophthalmology is approximately 0.973% per month.