United Residential is a real-estate developer considering a 40-unit apartmentcomplex in a growing college town. As the area is also booming with foreign auto-makers locatingtheir U.S. assembly plants, the firm expects that the apartment complex, once built, will enjoy a90% occupancy for an extended period. The firm already complied some of the critical financialinformation related to the development project as follows:Land price (1 acre) = $1,200,000.● Building (40 units of single bedroom) = $4,800,000.Project life 25 years.Building maintenance per unit per month = $100.Annual property taxes and insurance = $400,000.Assuming that the land will appreciate at an annual rate of 5%, but the building will have novalue at the end of 25 years (it will be torn down and a new structure would be built). Determinethe minimum monthly rate that should be charged if a 12% return (or 0.9489% per month) beforetax is desired.

The monthly rental should be based on the total cost involved in that includes the land ,building…

Answered: United Residential is a real-estate…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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United Residential is a real-estate developer considering a 40-unit apartment complex in a growing college town. As the area is also booming with foreign auto-makers locating their U.S. assembly plants, the firm expects that the apartment complex, once built, will enjoy a 90% occupancy for an extended period. The firm already complied some of the critical financial information related to the development project as follows: • Land price (1 acre) = $1,200,000. • Building (40 units of single bedroom) = $4,800,000. • Project life = 25 years. • Building maintenance per unit per month = $100. • Annual property taxes and insurance = $400,000. Assuming that the land will appreciate at an annual rate of 5%, but the building will have no value at the end of 25 years (it will be torn down and a new structure would be built). Determine the minimum monthly rate that should be charged if a 12% return (or 0.9489% per month) before tax is desired.
J& YI Company is a real-estate developer considering a -tO-unit apartmentcomplex in a growing college town. As the area is also booming with foreign automaker loca ting their U.S. nssembly plants. the firm expects that 1he apartment complex, once built. will enjoy a 90% occupancy for an extended period. 111e firm already compiled some of the critical financial information related to the development project as follows:• Land price ( I acre) = $ 1.200.000• Building (40unitsof singlebedroom) = $4.800.000• Project life = 25 years• Building maintenance per unit per month = $JOO• Annual property taxes and insurance = $400. 000Assuming that the land will appreciate at an annual rate of 5%, but the building will have no value al th e end of 25 years (it will be torn down and a new structure would be built), determine the minimum monthly rent that should be charged if a 12% return (or 0.9-t89% per month) before tax is desired.
Ajax Investment Company is considering the purchase of land that could be developed into a class A office project. At the present time, Ajax believes that the site could support a 300,000 rentable square foot project with average rents of $20 per square foot and operating expensesequal to 40 percent of that amount. It also expects rents to grow at 3 percent indefinitely and believes that Ajax should earn a 12 percent return (r) on investment. The building would cost $100 per square foot to build:a. What would the estimated property value and land value be under the above assumptions?b. If rents are suddenly expected to grow at 4 percent indefinitely, what would the property value and land value be now? What percentage change in land value would this be relative to the land value in (a)?c. Instead of (b), suppose rents will grow by only 1 percent because of excessive supply. What would land value be now? What percentage change would this be relative to the land value in (a)?d. Suppose…
A multinational engineering consulting firm that wants to provide resort accommodations to special clients is considering the purchase of a threebedroom lodge in upper Montana that will cost $250,000. The property in that area is rapidly appreciating in value because people anxious to get away from urban developments are bidding up the prices. If the company spends an average of $500 per month for utilities and the investment increases at a rate of 0.75% per month, how long would it be before the company could sell the property for $100,000 more than it has invested in it?
United Pigpen (UP) is considering a proposal to manufacture high protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $190,000, and thereafter the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $2.28 million. This could be depreciated for tax purposes over 10 years. However, UP expects to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $760,000. Finally, the project requires an initial investment in working capital of $665,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $7.98 million, and thereafter sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected…
An institutional investor is looking in the Miami market to purchase a Class A office building in the downtown area where prevailing cap rates are very compressed. Currently, cap rates are in the 4.0% to 4.5% range for trophy assets, depending on location and other attributes for class A office buildings. Give this information, and given the financials listed below, what should the buyer offer if they hope to submit a competitive bid? Gross revenue = $2,500,000 Other Income = $500,000 Operating expenses = $1,275,000 Offer amount $__- Please give an explanation, thank you!
United Pigpen (UP) is considering a proposal to manufacture high protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year’s rental charge on the warehouse is $260,000, and thereafter the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $3.1 million. This could be depreciated for tax purposes over 10 years. However, UP expects to terminate the project at the end of eight years and to resell the plant and equipment in year 8 for $1,040,000. Finally, the project requires an initial investment in working capital of $910,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $10.9 million, and thereafter sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are…
A Real estate investor has the opportunity to purchase a small apartment complex. The apartment complex costs $4 million and is expected to generate net revenue (that after all operating and finance costs) of $60,000 per month. Course, the revenue can vary because the occupancy rate is uncertain. Considering the uncertainty, the revenue could vary from a low -$10,000 To a high of $100,000 per month. Assume that the investors objective is to maximize the value of the investment in the 10 years. The city Council is currently considering an application to rezone a nearby empty parcel of land. The owner of that land wants to build a small electronics assembly plant. Was plant does not really conflict with the city’s overall land use plan, but it may have a substantial long-term negative effect on the value the nearby residential district in which the apartment complex is located. Because the city Council currently is divided on the issue and will not make a decision until next month, the…
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $160,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.56 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $520,000. Finally, the project requires an immediate investment in working capital of $410,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $5.40 million, and thereafter, sales are forecasted…
ABC Residential Investors, LLP, is considering the purchase of a 120 unit apartment complex in steel city, Pennsylvania. A market study of the area reveals that an average rental of $600 per month unit could be realized in the appropriate market area. During the last six months, two very comparable apartment complexes sold in the same market area. The oaks, 140 unit project, sold for $9 million. its rental schedule indicates that the average rent per unit is $550 per month. Palms, a 90 unit complex, Is presently renting units at $650 per month, and its selling price with $6.6 million the mix of number of bedrooms and sizes of units for both complexes is very similar to the subject property in both appear to have normal vacancy rates about 10% annually. All rents are net so tenants pay all utilities and expenses. a. Based on the data provided here, how would an appraiser establish an estimate of value? b. What other information would be desirable in reaching a conclusion about the…
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year’s rental charge on the warehouse is $190,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.74 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $580,000. Finally, the project requires an immediate investment in working capital of $440,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $6.00 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would require use of an existing warehouse, which is currently rented out to a neighboring firm. The next year’s rental charge on the warehouse is $190,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.74 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $580,000. Finally, the project requires an immediate investment in working capital of $440,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Working capital will be run down to zero in year 8 when the project shuts down. Year 1 sales of hog feed are expected to be $6.00 million, and thereafter, sales are forecasted…

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