City Oces Investment Company is considering the purchase of land that could be developed into an oce project. At the present time, City Oces believes that the site could support a 300,000 rentable square foot project with average rents of 20 per square foot and operating expenses equal to 40 percent of that amount. It also expects rents to grow at 3 percent indefinitely and expects to earn a 12 percent return on investment. The building would cost 100 per square foot to build.

[Hint: the present value of an infinite annual cash flow X that grows at rate g is X / r-g , where r is the discount rate.

A)

i- What would the estimated property value and land value be under the above assumptions?

ii- If rents are suddenly expected to grow at 4 percent indefinitely, what would the property value and land value be now? What percentage change in land value would this be relative to the land value in (i)?

B) Suppose the land owner is asking 12,000,000 for the land. Would this project be feasible?

C) If the land must be acquired for 12,000,000, how much of a change in the following would have to occur to make the project feasible? (Consider each item one at a time and hold all other variables constant.)

(i) - Expected return on investment.

(ii) - Expected growth in cash flows.

(iii) - Building cost.

(iv) - Rents.

D) Suppose now that City Oces is seeking to finance the project partially with a mortgage loan. It can obtain a loan with a DCR=1.1. The interest rate on the mortgage is 8 percent, compounded annually, and its maturity is 25 years. City Oces expects to keep the building indefinitely and expects a return of 13 percent on equity. What is the property value in this case?

NOTE - please solve all and not on excel i need to learn them by hand on paper.