Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

You are an investor with 12 million cash to invest. You wish to purchase an office building with this cash. You have a choice between

You are an investor with 12 million cash to invest. You wish to purchase an office building with this cash. You have a choice between three identical office buildings that are located in different areas of the same city. The following information is available regarding the three possible investments:
Building 1 Building 2 Building 3
Distance from the CBD (km) 0 5 10
Floor space (square metres) 1,000 1,500 2,000
Asking price (GBP) 8,000,000 12,000,000 11,000,000
Management costs (GBP per square metre per month) 15 5 10
1. Commercial rent in the central business district (CBD) is 60 per square metre per month and decreases cumulatively by 5% for each kilometre located away from the CBD. Tip: Cumulatively means that, if the building is located 2 kilometres away from the CBD, rent decreases by 5% for the first kilometre (which gives you 57), and by another 5% on 57 on the second kilometre, which gives you 54.
2. Building 2 has been certified as complying with sustainability standards.
3. A suitable discount rate for all areas is 6%.
4. There is a fountain outside Building 1 that you can persuade the local government to renovate by the time you purchase the property. Similar renovations to properties in the area have increased the rent charged per square metre by 3%.
5. The local government will impose a 2% tax, by the time you complete the purchase of the property, on the sale of all properties that are not certified as compliant with sustainability standards. Ignore the effects of any other taxes.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting And Reporting

Authors: Barry Elliott, Jamie Elliott

15th Edition

0273760882, 9780273760887

More Books

Students also viewed these Accounting questions

Question

Define self-esteem and discuss its impact on your life.

Answered: 1 week ago

Question

Discuss how selfesteem is developed.

Answered: 1 week ago