Consider an Investment in Which a Developer Plans to Begin

question 25

Multiple Choice

Consider an investment in which a developer plans to begin construction of a building one year if, at that point, rent levels make construction feasible and the building will cost $1 million to construct. There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that NOI will be $80,000. Using the traditional approach, similar to the "highest and best use" approach, what would be the land value of the property assuming a cap rate of 10 percent 12 percent discount rate and an NOI growth rate of 2 percent) ?

• A) $120,000
• B) $200,000
• C) $300,000
• D) $833,333
• E) $1,000,000

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