Part C1 of 3 Department of Transportation has entered into a lease with Japan International Cooperation Agency to undertake a redevelopment of the Metro Manila Subway, including the building of new retail premises, offices, and private stations. It assembled the site using its powers of compulsory purchase and has let the land to JICA for 120 years at a rent of 1,600,000 per annum. The yield expected from this type of investment is 25 per cent. What is the value of Department of Transportation's investment in this lease?
Part C1 of 3 Department of Transportation has entered into a lease with Japan International Cooperation Agency to undertake a redevelopment of the Metro Manila Subway, including the building of new retail premises, offices, and private stations. It assembled the site using its powers of compulsory purchase and has let the land to JICA for 120 years at a rent of 1,600,000 per annum. The yield expected from this type of investment is 25 per cent. What is the value of Department of Transportation's investment in this lease?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Part C1 of 3
Department of Transportation has entered into a lease with Japan International Cooperation Agency to
undertake a redevelopment of the Metro Manila Subway, including the building of new retail premises,
offices, and private stations. It assembled the site using its powers of compulsory purchase and has let
the land to JICA for 120 years at a rent of 1,600,000 per annum. The yield expected from this type of
investment is 25 per cent. What is the value of Department of Transportation's investment in this lease?
Part C 2 of 3
JICA has let a shop in the subway redevelopment scheme to Ayala Malls a commercial retailer, for 12 years
at a rent of 240,000 per year. The yield on prime retail property of this sort in the subway station is 5.5
per cent. What is the value of this lease?
Part C 3 of 3
JICA has secured an important concession from Department of Transportation in which it will not pay the
full rent of 1,600,000 per annum until year 5 of the project but will pay a reduced rent of 300,000 per year
for the first 4 years. This is to allow for JICA not being able to let all the
properties during the construction phase of the project. What is now the value of Department of
Transportation's investment in the lease?
Part D 1 of 2
An investment of 7,500,000 is expected to produce the following cash flows including decommissioning
costs in year 6,
Year Cashflow
O (7,500,000)
11,750,000
2 2,250,000
3 2,750.000
4 2,750,000
51.650.000
6 (1,250,000)
Calculate the Net Present Value of the investment at a target rate of 7.5%. Explain whether the investment
is viable at this discount rate.
Part D 2 of 2
Using the same NPV Data (Part D 1 of 1)
By how much could the cost of the project increase and the project still remain viable at a discount rate
of 7.5%?
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