Question
Mr Shahriman is a board chairman of a construction company claims his team to make a comparison between two potential real estate development projects. He
Mr Shahriman is a board chairman of a construction company claims his team to make a comparison between two potential real estate development projects. He also reminds them that the companys financial health is getting poor so he has to select one of them. The team works and lists below the potential incomes and costs of each project.
Project 1
- 500 housing units will be constructed at RM6,000 each unit.
- 400 of them will be sold and 100 of them will be rented for 20 years.
- Rental price of each unit is RM4,000 per year
- Rented 100 units will be sold RM70,000 after 20 years.
- Construction cost of each unit is RM100,000.
- The sale price of each unit is RM120,000.
- The project needs a luxury sales office with a price of RM2,000,000.
- The sales personnel cost is RM300,000 per year.
- The project duration is 3 years.
- Project financing cost is RM3,000,000 per year
Project 2
- 400 housing units will be constructed at RM5250 each unit.
- 350 of them will be sold and 50 of them will be rented for 15 years.
- Rented 50 units will be sold RM80,000 after 15 years.
- Rental Price of each unit is RM4,500 per year
- Construction Cost of each unit is RM90,000.
- The sale price of each unit is RM135,000.
- The project needs a luxury sales office with a price of RM3,000,000.
- The sales personnel cost is RM250,000 per year.
- The project duration is 2 years.
- Project financing cost is RM2,500,000 per year
The risk-free rate is 4.25 percent, risk premium is 3.75 percent and tax rate is 27.5 percent. Based on the information given, as a risk analyst, you are requested to advice the company by constructing the Net Present Value (NPV).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started