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A piece of land has three possibilities for development. Net Operating Income of 205,000 (60% likely); 256,000 (15% likely), and 112,000 (25% likely). The required
A piece of land has three possibilities for development. Net Operating Income of 205,000 (60% likely); 256,000 (15% likely), and 112,000 (25% likely). The required return is 13% with a growth rate of 1.25%. Construction costs are $1,400,000 no matter the development. Assume that the developer will wait 2 years and then construction will be finished in one day. NOI referenced above will be received throughout year 3 (assume end of year for simplicity). What is the value of the real option?
- A. 62,358
- B. 87,479
- C. 47,963
- D. 15,365
- E. 20,635
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