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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Definitions:

Total Assets

The sum of all assets owned by an entity, including both current and non-current assets, reflecting the total resources at its disposal.

Fixed Asset Turnover

A financial ratio that measures a company's efficiency in using its fixed assets to generate sales.

Net Fixed Assets

The value of a company's property, plant, and equipment minus depreciation, indicating the tangible assets used in operations.

Receivables Turnover

A ratio that measures a company's efficiency in collecting its sales on credit over a period of time.