Question 4 (20 marks) A mainland company, formed a joint venture with a local firm, is currently considering the acquisition of site in East Kowloon. The joint venture plans to build a multi-purpose building which provides a rentable floor area of 70,000 square foot after completion. The project is expected to finish in two years and the building can start to produce income in Year 3. The construction cost of the building is estimated to be $300 per square foot in today's dollar). According to the current estimates, there is a 60% chance to receive an average rent of $100 per square foot and a 40% chance to receive $80 two years later. Assume operating expenses of the building are always equal to 30 percent of the rent received. The joint venture expects the rental can grow at 4% indefinitely, and it requires a 14% return on the investment. A) Discuss two advantages of forming a joint venture. (2 marks) B) Find the expected net operating income from the multi-purpose building and also the capitalization rate. (4 marks) C) Use the traditional approach to find the expected value of the multipurpose building and the land value under the above assumptions. (6 marks) D) Suppose the land price charged by the government is $20,000,000. Base on your answer in part (B), should the joint venture acquire the site? (1 mark) E) Find the net present value of this investment. (2 marks) F) Suppose the joint venture can obtain a 10-year fully-amortizing bank loan that covers 80% of the land price and construction cost, at an interest rate of 5%, find its monthly payments, its debt coverage ratios in the first year and in the third year