6-76 An office building should last 60 years, but this owner will sell it at 20 years for 40% of its con- struction cost. For the first 20 years it can be leased as Class A space, which is all this owner operates. When the building is sold, the land's cost will be recovered in full. $2.2M Land $4.1M Building $640,000 Annual operating and maintenance 4% Annual property taxes and insurance (% of initial investment) (a) If the owner wants a 12% rate of return, what is the required monthly leasing cost? (b) Assuming that the building is vacant 5% of the time, what is the required monthly lease?
6-76 An office building should last 60 years, but this owner will sell it at 20 years for 40% of its con- struction cost. For the first 20 years it can be leased as Class A space, which is all this owner operates. When the building is sold, the land's cost will be recovered in full. $2.2M Land $4.1M Building $640,000 Annual operating and maintenance 4% Annual property taxes and insurance (% of initial investment) (a) If the owner wants a 12% rate of return, what is the required monthly leasing cost? (b) Assuming that the building is vacant 5% of the time, what is the required monthly lease?
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 12PROB
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Transcribed Image Text:6-76 An office building should last 60 years, but this
owner will sell it at 20 years for 40% of its con-
struction cost. For the first 20 years it can be leased
as Class A space, which is all this owner operates.
When the building is sold, the land's cost will be
recovered in full.
$2.2M
Land
$4.1M
Building
$640,000 Annual operating and maintenance
Annual property taxes and insurance
(% of initial investment)
(a) If the owner wants a 12% rate of return, what is
the required monthly leasing cost?
(b) Assuming that the building is vacant 5% of the
time, what is the required monthly lease?
(c) What is an example monthly cost per square foot
for Class A space in your community?
4%
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