Strassel Investors buys real estate, develops it, and resells it for a profit. A new property is available, and Bud Strassel, the president and owner of Strassel Investors, believes if he purchases and develops this property it can then be sold for $165000. The current property owner has asked for bids and stated that the property will be sold for the highest bid in excess of $100000. Two competitors will be submitting bids for the property. Strassel does not know what the competitors will bid, but he assumes for planning purposes that the amount bid by each competitor will be uniformly distributed between $100000 and $150000. a. Develop a worksheet that can be used to simulate the bids made by the two competitors. Strassel is considering a bid of $130000 for the property. Using simulation of 1000 trials, what is the estimate of the probability Strassel will be able to obtain the property using a bid of $130000? Round your answer to 1 decimal place. Enter your answer as a percent. % b. How much does Strassel need to bid to be assured of obtaining the property? What is the profit associated with this bid? 24

Strassel Investors buys real estate, develops it, and resells it for a profit. A new property is available, and Bud Strassel, the president and owner of Strassel Investors, believes if he purchases and develops this property it can then be sold for $165000. The current property owner has asked for bids and stated that the property will be sold for the highest bid in excess of $100000. Two competitors will be submitting bids for the property. Strassel does not know what the competitors will bid, but he assumes for planning purposes that the amount bid by each competitor will be uniformly distributed between $100000 and $150000. a. Develop a worksheet that can be used to simulate the bids made by the two competitors. Strassel is considering a bid of $130000 for the property. Using simulation of 1000 trials, what is the estimate of the probability Strassel will be able to obtain the property using a bid of $130000? Round your answer to 1 decimal place. Enter your answer as a percent. % b. How much does Strassel need to bid to be assured of obtaining the property? What is the profit associated with this bid? 24

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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Home Properties is developing a subdivision that includes 340 home lots. The 200 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 140 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $47,000 and for each Hilltop lot is $96,000. The developer acquired the land for $1.700,000 and spent another $2,700,000 on street and utilities improvements. Assign the joint land and improvement costs of $4,400,000 to the Canyon section and the Hilltop section using the value basis of allocation. (Do not round your intermediate calculations.) Canyon section Hilltop section Totals Sales Value Numerator Percent of Sales Value Denominator % of Sales Value 0 0 0 Cost to Allocate Allocated Cost Quantity of Lots
2. A warehouse owned by Martha and used in her business (i.e., to store inventory) is being condemned by the city to provide a right-of-way for a highway. The warehouse has appreciated by $180,000 based on Martha’s estimate of its fair market value. In the negotiations, the city is offering $35,000 less than what Martha believes the property is worth. Alan, a real estate broker, has offered to purchase Martha’s property for $20,000 more than the city’s offer. Martha plans to invest the proceeds she will receive in an office building she will lease to various tenants. Identify the relevant tax issues for Martha. Would the answer in part (1) change if Martha’s warehouse was property being held for investment rather than being used in her business? Explain.
MIRR unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,470,000 with cash flows over the next six years of $240,000 (year one). $280,000 (year two), $280,000 (years three through five), and $1,700,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,450,000 with cash flows over the next four years of $360,000 (years one through three) and $3,120,000 (year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is 9.5% and the appropriate discount rate for the sports facility is 11.5%. What are the MIRRS for the Grady Enterprises projects? What are the MIRRS when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives…
Jordan, Catherine, and Ashley invest $21,000, $12,000, and $17,000, respectively, to build a boat. After the boat was built, Jordan decided to sell his share of the investment to Catherine and Ashley. How much would Catherine and Ashley have to pay Jordan if they want to maintain the same ratio of their investments in the boat? a. How much would Catherine would have to pay? b. How much would Ashley have to pay?
NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company cumenty owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,430,000 with cash flows over the next six years of $170,000 (year one), $200,000 (year two), $330,000 (years three through five), and $1,720,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2.330,000 with cash flows over the next four years of $420,000 years one through three) and $3,480,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 10.0% and the appropriate discount rate for the sports facility is 11.5%, use the NPV to determine which project Grady should choose for the parcel of land. Adjust the NPV for unequal lives with the equivalent annual annuity. Does…
Home Properties is developing a subdivision that includes 470 home lots. The 170 lots in the Canyon section are below a ridge and do not have views of the neighboring canyons and hills; the 300 lots in the Hilltop section offer unobstructed views. The expected selling price for each Canyon lot is $51,000 and for each Hilltop lot is $98,000. The developer acquired the land for $2,400,000 and spent another $2,000,000 on street and utilities improvements. Assign the joint land and improvement costs of $4,400,000 to the Canyon section and the Hilltop section using the value basis of allocation. Note: Do not round your intermediate calculations. Canyon section Hilltop section Totals Sales Value Numerator Percent of Sales Value Denominator % of Sales Value Cost to Allocato Allocated Cost
Answering all questions compulsory....
Shamrock Oil owns a parcel of land that has the potential to be an underground oil field. It will cost $550,000 to drill for oil. If oil does exist on the land, Shamrock will realize a payoff of $3,000,000 (not including drilling costs). With current information, Shamrock estimates that there is a 0.3 probability that oil is present on the site. Shamrock also has the option of selling the land as is for $300,000, without further information about the likelihood of oil being present. A third option is to perform geological tests at the site, which would cost $150,000. There is a 30% chance that the test results will be positive, after which Shamrock can sell the land for $550,000 or drill the land, with a 0.70 probability that oil exists. If the test results are negative, Shamrock can sell the land for $60,000 or drill the land, with a 0.05 probability that oil exists. Using a decision tree, recommend a course of action for Shamrock Oil. Choose the correct decision tree that corresponds…
The City of Prattville donated some land with a few old manufacturing buildings on it to the Laurel Corporation that was only worth $50,000. The Laurel Corporation owns the television show, Home Renovations that builds beautiful condominiums from old manufacturing buildings and then sells them to young wealthy accountants. They film in Prattville for two months investing 2 million dollars in the complex. What basis does Laurel Corporation have in the condominium complex?
NPV unequal lives. Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of $1,470,000 with cash flows over the next six years of $170,000 (year one), $200,000 (year two), $350,000 (years three through five), and $1,760,000 (year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of $2,410,000 with cash flows over the next four years of $380,000 (years one through three) and $3,240,000 (year four), at which point Grady plans to sell the facility. If the appropriate discount rate for the restaurant is 9.5% and the appropriate discount rate for the sports facility is 13.0%, If the appropriate discount rate for the sports facility is 13.0%, what is the NPV of the sports facility?
Need help with this real estate question.
Acme Investors is considering the purchase of the undeveloped Baker 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: Rentable square feet Rents per square foot Operating expense ratio Average growth in NOI per annum Required return (r) Total construction cost per square foot Office 100,000 $ 42.00 Required: Which would be the highest and best use of this site? Which would be the highest and best use of this site? 40% 3% 13% $118 Retail 80,000 $ 52.50 50% 3% 14% $118

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