United Residential is a real-estate developer considering a 40-unit apartmentcomplex in a growing college town. As the area is also booming with foreign auto-makers locatingtheir U.S. assembly plants, the firm expects that the apartment complex, once built, will enjoy a90% occupancy for an extended period. The firm already complied some of the critical financialinformation related to the development project as follows:Land price (1 acre) = $1,200,000.● Building (40 units of single bedroom) = $4,800,000.Project life 25 years.Building maintenance per unit per month = $100.Annual property taxes and insurance = $400,000.Assuming that the land will appreciate at an annual rate of 5%, but the building will have novalue at the end of 25 years (it will be torn down and a new structure would be built). Determinethe minimum monthly rate that should be charged if a 12% return (or 0.9489% per month) beforetax is desired.

The monthly rental should be based on the total cost involved in that includes the land ,building…

Answered: United Residential is a real-estate…

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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