Is this a good investment? Use ROR method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A businessman is considering building a 25 unit apartment. The occupancy rate is expected to be 90% at all time. He desires a ROR of 20% in his investment. Other data are:
Land investment = P5,000,000
Building construction = P7,000,000
Life of investment = 20 years
Cost of land after 20 years = P20,000,000
Cost of building after 20 years = P2,000,000
Rent per unit per month = P10,000
Maintenance per unit per year = P2500
Taxes per year = 1%
Insurance per year = 0.50%
Is this a good investment? Use ROR method.
Answer: Investment is justified, but what is the value of ROR? (VALUE OF ROR IS MORE THAN 12.55%)
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