5. MBA 251 Speculators own an undeveloped tract of land in the outskirts of Sacramento, which they bought in the year 2006 for $1.5 million. The land is currently zoned for agricultural use. However, a developer could have it rezoned for commercial use if that use were financially feasible. If rezoned, the land could be developed into one of three uses: office building, strip mall, or a warehouse. Suppose that under current market conditions, costs of construction and the economic outlook, the three uses associated with the following estimated inputs: Use Variables Office building Strip mall Warehouse Required rate of return 11% 14% 10% Annual growth in net operating income 3% 3% 3% Size (rentable area in square feet) 50,000 40,000 49,000 Total construction cost per square foot $80 $85 $65 Annual rent per square foot $20 $22 $10 Vacancy rate 0% 0% 0% Operating expense ratio 40% 50% 0% (triple-net lease) a. (15 points) Suppose that Opportunistic Developer approaches MBA 251 Speculators and offers $2.5 million for the land. When he makes the offer, Mr. Developer (correctly) points out that MBA 251 would make a $1 million gain by accepting the offer. Should MBA 251 Speculators accept the offer? Why or why not? b. (6 points) The land will most likely be developed into _______________________. Fill in the blank and explain your answer c. (9 points) What is the current land value?