An acre (43,560 SF) of land in the Central Business District (CBD) is being used as...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
An acre (43,560 SF) of land in the Central Business District (CBD) is being used as an open parking lot. The land currently brings an operating cashflow of $28/SF/year, paid in arrears, which is expected to increase by 2% annually. The discount rate for the parking lot rents is 8%. An investment project that is being considered is building a 100,000 SF office building on the land. The construction will cost $2,000,000 and the building will have a 30 year productive life after it is built (after 30 years, it is assumed that the building can be demolished and the land can be converted to a parking lot identical to the one we currently own, without additional cost). The construction will take one year¹. The resulting office space is expected to produce operating cashflows of $22/SF/year (in arrears) starting next year, and the rent is expected to increase by 1% annually. The required rate of return on office buildings is 11%. Is this a good investment project? Question 3 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the implied cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the implied cap rate at time 07 Question 4 Consider the following projected cash flows (including reversion) for Property A and Property B for the following 10 years. Assume that operating cash flows (excluding reversion) = NOI, there are no capital expenditures. Annual net cash flow projections for two properties ($ millions) 3 4 6 8 5 1 2 7 9 10. A $1.0000 $1.0050 $1.0100 $1.0151 $1.0202 $1.0253 $1.0304 $1.0355 $1.0407 $12.7252 B $1.0000 $1.0200 $1.0404 $1.0612 $1.0824 $1.1041 $1.1262 $1.1487 $1.1717 $14.7395 a. What is the annual growth rate in operating cash flows for each building during the first nine years? b. If both properties sell at cap rates (initial and terminal cash yields) of 9%, what is the expected annual return on a 10-year investment in each property? An acre (43,560 SF) of land in the Central Business District (CBD) is being used as an open parking lot. The land currently brings an operating cashflow of $28/SF/year, paid in arrears, which is expected to increase by 2% annually. The discount rate for the parking lot rents is 8%. An investment project that is being considered is building a 100,000 SF office building on the land. The construction will cost $2,000,000 and the building will have a 30 year productive life after it is built (after 30 years, it is assumed that the building can be demolished and the land can be converted to a parking lot identical to the one we currently own, without additional cost). The construction will take one year¹. The resulting office space is expected to produce operating cashflows of $22/SF/year (in arrears) starting next year, and the rent is expected to increase by 1% annually. The required rate of return on office buildings is 11%. Is this a good investment project? Question 3 Consider a 100,000 sqf office building with the following cash flows: The gross rent in year 1 is $30/sqf/year and the rents are expected to grow at 2% per year. The operating expenses in the first year are $5/sqf/year and are expected to increase at 3% per year. There are no capital expenditures. All cash flows are in arrears. The discount rate for the property is 9%. a. What is the value of the building if the building will be held and rented indefinitely? What is the implied cap rate at time 0? b. What is the value of the building if the building is sold at the end of 10 years at a 8% cap rate? What is the implied cap rate at time 07 Question 4 Consider the following projected cash flows (including reversion) for Property A and Property B for the following 10 years. Assume that operating cash flows (excluding reversion) = NOI, there are no capital expenditures. Annual net cash flow projections for two properties ($ millions) 3 4 6 8 5 1 2 7 9 10. A $1.0000 $1.0050 $1.0100 $1.0151 $1.0202 $1.0253 $1.0304 $1.0355 $1.0407 $12.7252 B $1.0000 $1.0200 $1.0404 $1.0612 $1.0824 $1.1041 $1.1262 $1.1487 $1.1717 $14.7395 a. What is the annual growth rate in operating cash flows for each building during the first nine years? b. If both properties sell at cap rates (initial and terminal cash yields) of 9%, what is the expected annual return on a 10-year investment in each property?
Expert Answer:
Answer rating: 100% (QA)
Here are the answers to the questions 1 Yes this is a good investment project Construction cost is 2 ... View the full answer
Related Book For
Law for Business
ISBN: 978-1259722325
13th edition
Authors: A. James Barnes, Terry M. Dworkin, Eric L. Richards
Posted Date:
Students also viewed these finance questions
-
There is a virus turning people into zombies who attack the living and never die. No one knows where it came from, but when the virus was first detected, it was 3 days after a group of 20...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
In September 2000, Bernie Lomax, president of The Percy Group, a large real estate development company in London, contemplated an opportunity that had been presented to him. Shady Pines Retirement...
-
what would you like to recommend to Australian government in regards to their fiscal stimulus policy for supporting covid affected society?
-
Two 20 kg spheres are fixed in place on a y axis, one at y = 0.40 m and the other at y = -0.40 m. A 10 kg ball is then released from rest at a point on the x axis that is at a great distance...
-
Show that for a system with both viscous and Coulomb damping the approximate value of the steady-state amplitude is given by \[X^{2}\left[k^{2}\left(1-r^{2} ight)^{2}+c^{2} \omega^{2} ight]+X \frac{8...
-
What is the difference between a fixed-rate and a floating-rate bond?
-
The Johnson Company bought a truck costing $24,000 two and a half years ago. The trucks estimated life was four years at the time of purchase. It was accounted for by using straight line depreciation...
-
EPC Solar requires a $100 million investment to build the solar facility. It is expected to generate $20 million per year and operate for 20 years. Its operating expenditures are $5 million per year....
-
1. Absent any resource constraints, which marketing strategy do you think is most viable? Which is the second-best strategy? Which is the least viable? 2. What overall food trends were taking place...
-
Compare and contrast the ability and mixed approaches to EIhow are they similar, how are they different?
-
Suppose you are a mutual fund manager. You are planning to invest in a portfolio consisting of two stocks. Stock A has an expected return of 9% and a standard deviation of 17%. Stock B has a standard...
-
Write a SQL query that finds all employees earning more than the average salary in a company
-
B Matthew, Incorporated, owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly Influence the Investee's operations and decision making. On January 1, 2024,...
-
Lakeshore Manufacturing provided the following information for the month ended March 31: Sales Revenue Beginning Finished Goods Inventory Ending Finished Goods Inventory Cost of Goods Manufactured...
-
Determine the tax liability for tax year 2 0 2 3 in each of the following instances. In each case, assume the taxpayer can take only the standard deduction. Use the Tax Tables for taxpayers with...
-
2. Create program statements in Python that compute a vector of y values based on the following formulas: 61-31-4 (a) y= 0.110.25 Ssin (5) (b) y. 3-2 4t 2 where r is a vector of 10 values in the...
-
Write the given system without the use of matrices. D) - ()- d (x sin t + 8 (2+ 1)
-
Arista Records filed suit against Columbus Farmers Market for vicarious copyright infringement. Arista claims that the flea market is a pirate bazaar where many of the flea markets vendors sell...
-
Barron, a commercial contractor, was having financial problems as a result of problems on various projects. Barron and Lambert had a long-standing professional relationship based on public service on...
-
A Miami-Dade County ordinance required that stevedores (workers who load and unload cargo) working in the Port of Miami have a license. Stevedore permits expired annually, and a county ordinance...
-
For an undirected graph with the adjacency matrix below, find the connected components. \[ \left(\begin{array}{llllllllll} 0 & 1 & 0 & 0 & 0 & 0 & 0 & 0 & 0 & 1 \\ 1 & 0 & 0 & 0 & 0 & 0 & 0 & 0 & 0 &...
-
Adjacency matrices are not the only way of representing graphs. An adjacency list representation of a graph is a list, vertex-by-vertex, of the vertices that are adjacent to that vertex. For example,...
-
Write a Mathematica command that takes a weight matrix of a graph, and a list of vertices forming a path in the graph, and returns the weight of the path.
Study smarter with the SolutionInn App