Question
A real estate investor has a 30 year lease on a plot of land. He gets estimates on the cost and income of various types
A real estate investor has a 30 year lease on a plot of land. He gets estimates on the cost and income of various types of building projects on the piece of land as follows:
| Building type | Cost of the building($) | Net profit per year |
A | Apartment house | 300,000 | 69,000 |
B | Theater | 200,000 | 40,000 |
C | Department store | 250,000 | 55,000 |
D | Office building | 400,000 | 76,000 |
Each building type is expected to have a salvage value equal to 20% of its initial cost. If the investor requires a minimum attractive rate of return of at least 12%. Which building type ( if any ) he would build?.
D | ||
B | ||
C | ||
A |
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