EXAMPLE 2-5 Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo- miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con- sidering a design that includes a 32-unit building on each lot. Data includes the following: Initial Costs Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot Legal fees, applications, permits, etc.: $80,000 Site clearing and preparation: $3000/acre Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre Construction costs: $3,000,000 per building. Recurring Costs Taxes and insurance: $5000/month per building Landscaping: 25% of lot at $1000/acre/month Security: $1000/building $1500/month Other costs: $2000/month' Revenue (assume 90% annual occupancy) Front lot units: $2500/unit/month Rear lot units: $1750/unit/month Other revenue: $5000/month Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost, annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying assumption of no changes to costs and revenues for 10 years, estimate the profitability of this prospective investment ignoring the effects of money's value over time.
EXAMPLE 2-5 Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo- miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con- sidering a design that includes a 32-unit building on each lot. Data includes the following: Initial Costs Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot Legal fees, applications, permits, etc.: $80,000 Site clearing and preparation: $3000/acre Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre Construction costs: $3,000,000 per building. Recurring Costs Taxes and insurance: $5000/month per building Landscaping: 25% of lot at $1000/acre/month Security: $1000/building $1500/month Other costs: $2000/month' Revenue (assume 90% annual occupancy) Front lot units: $2500/unit/month Rear lot units: $1750/unit/month Other revenue: $5000/month Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost, annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying assumption of no changes to costs and revenues for 10 years, estimate the profitability of this prospective investment ignoring the effects of money's value over time.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
please help.
Transcribed Image Text:EXAMPLE 2-5
Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo-
miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo
leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con-
sidering a design that includes a 32-unit building on each lot. Data includes the following:
Initial Costs
Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot
Legal fees, applications, permits, etc.: $80,000
Site clearing and preparation: $3000/acre
Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre
Construction costs: $3,000,000 per building.
Recurring Costs
Taxes and insurance: $5000/month per building
Landscaping: 25% of lot at $1000/acre/month
Security: $1000/building $1500/month
Other costs: $2000/month'
Revenue (assume 90% annual occupancy)
Front lot units: $2500/unit/month
Rear lot units: $1750/unit/month
Other revenue: $5000/month
Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost,
annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying
assumption of no changes to costs and revenues for 10 years, estimate the profitability of this
prospective investment ignoring the effects of money's value over time.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education