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An investor owns an empty block of land that was bought for $ 4 million a few years ago, but could be sold at auction
An investor owns an empty block of land that was bought for $ million a few years ago, but could be sold at auction for $ million now. The land has local government approval to be developed into either: Lowrise townhouses costing $ million now t that can be rented for $ million in the first year, paid at the end of that year t and then rent is expected to grow by pa every year forever; or High rise apartments costing $ million now t that can be rented for $ million in the first year, paid at the end of that year t and then rent is expected to grow by pa every year forever. The government will only allow a single development so the projects are mutually exclusive. These projects have the same risk and pa required return. Both will be fully constructed in one year, at which point tenants will move in and pay rent annually in advance, with the growth rates given. Ignore all maintenance costs, tenant vacancies, taxes and so on All answer options are rounded to decimal places. Compare the two projects against selling the land. Which of the following statements is NOT correct? Question Select one: a $ million is the NPV of the lowrise townhouses. b pa is the IRR of the lowrise townhouses. c $ million is the NPV of the highrise apartments. d pa is the IRR of the highrise apartments. e The highrise apartment project should be accepted.
An investor owns an empty block of land that was bought for $ million a few years ago, but could be sold at auction for $ million now. The land has local government approval to be developed into either:
Lowrise townhouses costing $ million now t that can be rented for $ million in the first year, paid at the end of that year t and then rent is expected to grow by pa every year forever; or
High rise apartments costing $ million now t that can be rented for $ million in the first year, paid at the end of that year t and then rent is expected to grow by pa every year forever.
The government will only allow a single development so the projects are mutually exclusive.
These projects have the same risk and pa required return. Both will be fully constructed in one year, at which point tenants will move in and pay rent annually in advance, with the growth rates given. Ignore all maintenance costs, tenant vacancies, taxes and so on All answer options are rounded to decimal places. Compare the two projects against selling the land. Which of the following statements is NOT correct?
Question Select one:
a
$ million is the NPV of the lowrise townhouses.
b
pa is the IRR of the lowrise townhouses.
c
$ million is the NPV of the highrise apartments.
d
pa is the IRR of the highrise apartments.
e
The highrise apartment project should be accepted.
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