Turnkey Construction is a construction firm with $6$ offices across the US$.$ They specialize in building office space in urban and suburban locations. They decided to develop a bid on a project located in Auburn, MA to build a two$-$story structure of $20,000$ sq$.$ ft$.$ of professional office space on an open parcel on Rte. $20.$ They used RS Means to quickly create a Conceptual Estimate of $$4,175,750.$ This includes all materials, equipment, labor and overhead. They added $$100,000$ for the land and another $$600,000$ profit to create a bid of $$4,875,750.$ Bids will be opened on February $1,2024.$ If they win, they expect to break ground on March $1,2024.$ They use a project plan template that they developed in$-$ house that they have evolved since $1946.$ Based on the way this project lays out on the plan and the known availability of labor and materials, they expect to complete the project by December $1,2024$ with occupancy beginning January $1,2025.$

As part of quoting the cost of a job, Turnkey likes to submit a Cost$/$Benefit analysis for the building owner showing expected ROI, Break Even Point, and Net Present Value at the $10-$year mark. For NPV they use a likely rate of inflation of $3\%,$ and an assumed Minimum Attractive Rate of Return of $8\%.$ MARR is shown on a separate sheet designed to look exactly like the $3\%$ NPV sheet. For both of these they show the year in which the NPV turns positive.

For each sheet, they show yearly net totals and cumulative totals, and they highlight the years in which the sheet turns positive for cash flow, interest rate, and MARR. They treat the total bid price as the capital expense in Year $0,$ and they treat all operating costs and benefits as beginning in Year $1.$ They show estimated annual operating costs as follows.

Annual operating income

$19000$ rented sq$.$ ft @ $$35/$sq$.$ ft$/$year$.$ This is expected to increase by $3\%/$year$.$

Annual operating costs $$ Hardware, software, misc.

Property Management $$80,000/$year$.$ expected to increase by $3\%/$year$.$

Maintenance and some Utilities $$2/$sq$.$ft$./$yr

Following the model presented in the lecture, develop a spreadsheet that summarizes the project$$s cash flow, assuming a ten$-$year payback period after the project is developed.

Following the model presented in the lecture, find the year in which the present value of the cash flows turns positive using an interest rate of $3\%.$ Also please find the year in which the project meets the MARR of $10\%.$ The MARR calculation parallels the interest discount calculation, except that it uses a different percentage.

Questions:

$1.$ What is the ROI at the end of $10$ years?

$2.$ What is the break$-$even point, if it is reached within $10$ years?

$3.$ What is the NPV for this project at the end of $10$ years, based on the interest rate? In which year does NPV turn positive?

$4.$ What is the NPV for this project at the end of $10$ years, based on the MARR? In which year does this figure turn positive, if that is within $10$ years?

$5.$ Should this project be approved to move forward based on this financial model?