You and your friend observe that apartment properties in your city are in Phase II: Expansion of the Real Estate Cycle which means they're likely to keep increasing in profitability and value for the next few years.The two of you identify a vacant piece of land zoned for apartment use which you can purchase for $4 million today (an amount which will need to be paid immediately).

After detailed analysis you find that constructing apartments will take one year and cost $2 million (which will need to be paid at the end of Year 1).

Once the buildings are completed (at the end of the first year), you plan on renting out the spaces at annual profit (after all expenses) of $600,000 to be receivedat the endof each of the three years following the completion of the development (ex: your first $600,000 payment will be received at the end of Year 2).

Finally, having established a track record, you plan on selling the buildings for $10.6 million at the end of the fourth year.

Q1(d). You are also considering buying and holding the vacant land and selling it at the end of four years to another developer.Following this strategy would mean you'd miss out on the annual profits from the building, but you would avoid the construction costs.

Assume there are no direct expenses associated with holding the land and that you expect to sell it for $6.1 million four years from today.

Assuming you go through with the purchase of the land,which project would you undertake?

Option #1: Build the Apartments

Option #2: Hold the Vacant Land?

Explain your reasoningby discussing thepart of theNPV Rule forMaking Investment Decisions that's relevant to this situation and how itinformsyourdecision.