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Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million

Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million What is the value of the land assuming it is developed into a retail building?
Transcribed Image Text:Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million What is the value of the land assuming it is developed into a retail building?
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