Use the Following Information to Answer the Subsequent Questions

Use the following information to answer the subsequent questions. At site "A" the best current construction project is a retail plaza that would cost $3,000,000 to build exclusive of land cost) and would then generate net rents of $400,000/yr, expected to grow at 2% per year indefinitely. At site "B" the best current construction project is an office building that would generate net rents of $500,000 per year, expected to remain constant. Construction of the office building would cost $4,000,000 exclusive of land cost) . Suppose investors require a cap rate current net income as percent of investment) equal to 10% minus the expected annual growth rate in the net income.
-Based on the current best projects described above, which site is most valuable?

A) Site A.
B) Site B.
C) Both sites are equal in value.
D) Insufficient information to answer the question.

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free