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2. Suppose that you would like to purchase a 5-acre parcel at a price of $200,000 per acre. Your goal is to subdivide the parcel
2. Suppose that you would like to purchase a 5-acre parcel at a price of $200,000 per acre. Your goal is to subdivide the parcel into 20 individual lots, install the necessary infrastructure, and sell the lots to builders. You expect the site development costs to be $125,000 per acre. You expect that site development will take 6 months and that you will be able to sell 5 lots per month beginning in month 9. You have found a lender who is willing to make a land development loan for 75% of the total project costs. The lender will charge you an origination fee equal to 1.5% of the total loan amount and will disperse the loan's proceeds in 3 equal draws. The draws will take place at closing and during months 1 and 2. What release price should the lender charge if they would like to receive an 10% annual yield from this loan? 2. Suppose that you would like to purchase a 5-acre parcel at a price of $200,000 per acre. Your goal is to subdivide the parcel into 20 individual lots, install the necessary infrastructure, and sell the lots to builders. You expect the site development costs to be $125,000 per acre. You expect that site development will take 6 months and that you will be able to sell 5 lots per month beginning in month 9. You have found a lender who is willing to make a land development loan for 75% of the total project costs. The lender will charge you an origination fee equal to 1.5% of the total loan amount and will disperse the loan's proceeds in 3 equal draws. The draws will take place at closing and during months 1 and 2. What release price should the lender charge if they would like to receive an 10% annual yield from this loan
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