Use the Following Information to Answer the Subsequent Questions

question 24

Multiple Choice

Use the following information to answer the subsequent questions. At site "A" the best current construction project is a retail plaza that would cost $3,000,000 to build exclusive of land cost) and would then generate net rents of $400,000/yr, expected to grow at 2% per year indefinitely. At site "B" the best current construction project is an office building that would generate net rents of $500,000 per year, expected to remain constant. Construction of the office building would cost $4,000,000 exclusive of land cost) . Suppose investors require a cap rate current net income as percent of investment) equal to 10% minus the expected annual growth rate in the net income.
-Based on the current best projects described above, which site is most valuable?

• A) Site A.
• B) Site B.
• C) Both sites are equal in value.
• D) Insufficient information to answer the question.

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Definitions:

Delta Rhythm

A type of brain wave pattern associated with deep sleep, characterized by low frequency and high amplitude waves.

EEG

Electroencephalogram, a test that measures electrical activity in the brain.

Deep Sleep

A stage of sleep characterized by slow brain waves, known as delta waves, minimal physiological activity, and difficulty waking up; important for restorative processes.