A developer plans to start construction of a building in one year if at that point rent levels make construction feasible. At thattime, the building will cost $1,020,000 to construct. During the first year after construction would take place, there is a 60percent chance that NOI will be $151,500 and a 40 percent chance that the NOI will be $75,800. In either case, NOI would beexpected to increase at 2 percent per year after the first year.Required:a. What is the value of the land at the end of the year in both possible scenarios?b. How much should the developer be willing to pay for the land?Complete this question by entering your answers in the tabs below.Required A Required BWhat is the value of the land at the end of the year in both possible scenarios?Land value if NOI is $151,500:Land value if NOI is $75,800: Required ARequired BHow much should the developer be willing to pay for the land?Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar.Amount payable by developer

Step 1:Net Operating Income NOI Step 2: Step 3: Step 4:

Answered: A developer plans to start construction…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

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Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 17EA: Gardner Denver Company is considering the purchase of a new piece of factory equipment that will...

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Markoff Products is considering two competing projects, but only one will be selected. Project A requires an initial investment of $42,000 and is expected to generate future cash flows of $6,000 for each of the next 50 years. Project B requires an initial investment of $210,000 and will generate $30,000 for each of the next 10 years. If Markoff requires a payback of 8 years or less, which project should it select based on payback periods?
A developer plans to start construction of a building in one year if at that point rent levels make construction feasible. At that time the building will cost $1,340,000 to construct. During the first year after construction would take place, there is a 60 percent chance that NOI will be $175,500 and a 40 percent chance that the NOI will be $88,600. In either case, NOI would be expected to increase at 2 percent per year after the first year. Required: How much should the developer be willing to pay for the land if he wants a 12 percent rate of return? (Round your answer to the nearest whole dollar amount.) Amount payable by developer $ 1,334,444
A developer plans to start construction of a building in two years if, at that point, rent levels make construction feasible. At that time, the building will cost $1,000,000 to construct. During the first year after construction (year 3), there is a 50% chance that NOI will be $150,000 and a 50% chance that the NOI will be $75,000. In either case, NOI would be expected to increase at 4% per year thereafter. What is the value of the real option on the vacant land today if the relevant discount rate is 14%? O 109,649 O 137,369 O 192,367 96,183
Developers are going to install an airconditioning system in their building and, as a consequence, they believe they can increase rents by $40,000 per month. System A will cost $1,850,000 and monthly maintenance is $4000; system B will cost $1,020,000 and monthly maintenance is $12,000. Using EUAC analysis over 5 years with an interest rate of 18% per year, which alternative should be selected?
Consider an investment in which a developer plans to begin construction, of a building that will cost $2,000,000, in two years if, at that point, rent levels make construction feasible. There is a 40 percent chance that NOI will be $200,000 and a 60 percent chance that NOI will be $80,000 one year after the construction. Assuming 10 percent discount rate and an NOI growth rate of 5 percent, what would the land value be at the completion of the construction, under the real options approach?
A new project is being planned for a study period of 8 years. It will require $250,000 for the start-up and after theend of the first year, $13,500 shall be paid for its innovation. The board then requires to add another modifiedtechnology which will cost $25,000 by the end of the second year. After the end of third year, the project will startto earn $57,500 annually. Calculate the annual effective interest rate using ERR method if the interest rate externalto this project (ε) is 13.75%.
A development company would like to purchase a group of condominiums with an annual cash flow of $17,500. They expect to own them for 5 years, and the estimated selling price at that time is $540,000. Calculate the maximum amount the company can pay for the condos in order to realize a 12% annual return or yield. Show relevant calculation with formula
Ace Investment Company is considering the purchase of the Apartment Arms project. Next year's NOI and cash flow is expected to be $2,080,000, and based on Ace's economic forecast, market supply and demand and vacancy levels appear to be in balance. As a result, NOI should increase at 4 percent each year for the foreseeable future. Ace believes that it should earn at least a 13 percent return on its investment. Required: a. Assuming the above facts, what would the estimated value for the property be now? b. What going-in cap rates should be indicated from recently sold properties that are comparable to Apartment Arms? c. What would the estimated value for the property, if the required return changes to 12 percent?
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As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project's life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACE is 11%. The firm's project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated. What are the revised values for standard deviation, and coefficient of variation? • Standard deviation of NPV = $ • Coefficient of variation of NPV =
As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The purchase price of the equipment, including installation, is $65,000, and the equipment will be fully depreciated at t = 0. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project’s life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Variable costs would be 70% of sales revenues, fixed costs would be $30,000 per year, the marginal tax rate is 25%, and the corporate WACC is 11%. The firm’s project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated. What WACC should be used for this project when project risk has been properly considered?

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