Present Value of Cash Streams-Rent Payment-Rate of Return
Hi, here is the scenario we have regarding our rent we pay for our business office.
Normally, rent is $2,300/month, paid on the 1st of the month.
Our landlord has offered to give us a 7% discount if we pre-pay. That means rent is $2,139/month.
We are considering pre-paying rent for 6 months out. We plan to make that payment December 31, 2010 and it will be for the January-June (6 months) 2011 period. This would mean we pay $12,834 on December 31.
What sort of calculations should we be doing to evaluate this deal? Do we want to find the rate of return? The Future Value of our pre-payment? We know getting this discount is good, but we aren't sure how good and how to properly evaluate it.