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.
-Suppose the current market value of both undeveloped sites is $1,500,000 each. On which site or sites is it currently profitable to develop?

A) Site A.
B) Site B.
C) Both sites A and B.
D) Neither site A nor B.

Correct Answer:

Verified

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

Access For Free