A company is considering the purchase of land that could be developed into offices. At the present time, the company believes that the site could support a 300,000 rentable square foot project with average rent of Sh.20 per square foot and operating expenses equal to 40% of that amount. It also expects rents to grow at 3% indefinitely and believes that the company should earn 12% return (r) on the investment. The building would cost Sh.100 per square foot to build. Required:

(a) Calculate the estimated property value and land value under the above assumptions. (5 marks] .

(b)Suppose the land owner is asking for Sh.12 million for the land, how much of a change would occur to make the project feasible

(c) If the land must be acquired for Sh.12 million, how much of a change in the following would have to occur to make the project feasible:

(i) Expected return on the investment (r) [4 marks)

(ii) Expected growth in cash flows [4 marks]

(ii) Building costs [4 marks]

(iv)Rents [4 marks]

NB: Consider each item one at a time and hold all the other variables constant.