The investor-developer would not be comfortable with a 7.8 percent return on cost because the margin for error is too risky. If construction costs are higher or rents are lower than anticipated, the project may not be feasible. The asking price of the project is $18,100,000 and the construction cost per unit is $83,400. The current rent to justify the land acqusition is $2.8 per square foot. The weighted average is 900 square feet per unit. Average vacancy and Operating expenses are 5% and 35% of Gross Revenue respectively. Use the following data to rework the calculations in Concept Box 16.2 in order to assess the feasibility of the project: Required: a. Based on the fact that the project appears to have 9,360 square feet of surface area in excess of zoning requirements, the developer could make an argument to the planning department for an additional 10 units, 250 units in total, or 25 units per acre. What is the percentage return on total cost under the revised proposal? Is the revised proposal financially feasible? b. Suppose the developer could build a 240-unit luxury apartment complex with a cost of $159,500 per unit. Given that NOI is 60% of rents. What would such a project have to rent for (per square foot) to make an 8 percent return on total cost?

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
icon
Related questions
icon
Concept explainers
Topic Video
Question

I NEED HELP ASAP! I NEED BOTH REQUIRMENT A AND B!

The investor-developer would not be comfortable with a 7.8 percent return on cost because the margin for error is too risky. If
construction costs are higher or rents are lower than anticipated, the project may not be feasible. The asking price of the project is
$18,100,000 and the construction cost per unit is $83,400. The current rent to justify the land acqusition is $2.8 per square foot. The
weighted average is 900 square feet per unit. Average vacancy and Operating expenses are 5% and 35% of Gross Revenue
respectively. Use the following data to rework the calculations in Concept Box 16.2 in order to assess the feasibility of the project:
Required:
a. Based on the fact that the project appears to have 9,360 square feet of surface area in excess of zoning requirements, the
developer could make an argument to the planning department for an additional 10 units, 250 units in total, or 25 units per acre. What
is the percentage return on total cost under the revised proposal? Is the revised proposal financially feasible?
b. Suppose the developer could build a 240-unit luxury apartment complex with a cost of $159,500 per unit. Given that NOI is 60% of
rents. What would such a project have to rent for (per square foot) to make an 8 percent return on total cost?
Complete this question by entering your answers in the tabs below.
Required A Required B
Based on the fact that the project appears to have 9,360 square feet of surface area in excess of zoning requirements, the
developer could make an argument to the planning department for an additional 10 units, 250 units in total, or 25 units per
acre. What is the percentage return on total cost under the revised proposal? Is the revised proposal financially feasible?
Note: Do not round intermediate calculations. Round your percentage answer "Total cost under the revised proposal" to 2
decimal places.
Return on total cost under the revised proposal
Whether the revised proposal is financially feasible?
%
Show less
Transcribed Image Text:The investor-developer would not be comfortable with a 7.8 percent return on cost because the margin for error is too risky. If construction costs are higher or rents are lower than anticipated, the project may not be feasible. The asking price of the project is $18,100,000 and the construction cost per unit is $83,400. The current rent to justify the land acqusition is $2.8 per square foot. The weighted average is 900 square feet per unit. Average vacancy and Operating expenses are 5% and 35% of Gross Revenue respectively. Use the following data to rework the calculations in Concept Box 16.2 in order to assess the feasibility of the project: Required: a. Based on the fact that the project appears to have 9,360 square feet of surface area in excess of zoning requirements, the developer could make an argument to the planning department for an additional 10 units, 250 units in total, or 25 units per acre. What is the percentage return on total cost under the revised proposal? Is the revised proposal financially feasible? b. Suppose the developer could build a 240-unit luxury apartment complex with a cost of $159,500 per unit. Given that NOI is 60% of rents. What would such a project have to rent for (per square foot) to make an 8 percent return on total cost? Complete this question by entering your answers in the tabs below. Required A Required B Based on the fact that the project appears to have 9,360 square feet of surface area in excess of zoning requirements, the developer could make an argument to the planning department for an additional 10 units, 250 units in total, or 25 units per acre. What is the percentage return on total cost under the revised proposal? Is the revised proposal financially feasible? Note: Do not round intermediate calculations. Round your percentage answer "Total cost under the revised proposal" to 2 decimal places. Return on total cost under the revised proposal Whether the revised proposal is financially feasible? % Show less
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Capital Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education