Consider an Investment in Which a Developer Plans to Begin

question 4

Multiple Choice

Consider an investment in which a developer plans to begin construction,of a building that will cost $1,000,000,in one year if,at that point,rent levels make construction feasible.There is a 50 percent chance that NOI will be $160,000 and a 50 percent chance that NOI will be $80,000.Assuming a cap rate of 10 percent (12 percent discount rate and an NOI growth rate of 2 percent) what would the land value be at the completion of the construction,under the real options approach?

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

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