Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million

Acme Investors is considering the purchase of an undeveloped tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail. Based on its estimates, the land could be developed as follows: Use Office Retail Potential Gross Income $300,000 $400,000 Vacancy Ratio Operating Expense Ratio 40% 30% Appropriate Cap Rate 9% 10% Construction cost $2 million $2.4 million

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 26P

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Acme Investors is considering the purchase of the undeveloped Baker Tract of land. It is currently zoned for agricultural use. If purchased, however, Acme must decide how to have the property rezoned for commercial use and then how to develop the site. Based on its market study, Acme has made estimates for the two uses that it deems possible, that is, office or retail.Based on its estimates, the land could be developed as follows: Office RetailRentable square feet 100,000 80,000Rents per square foot $24.00 $30.00Operating expense ratio of 40% 50%Avg. growth in NOI per annum 3% 3%Required return (r) 13% 14%Total…
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A local energy provider offers a landowner $180,000 for the exploration rights to natural gas on a certain site and the option for future development. This option, if exercised, is worth an additional $1,800,000to the landowner, but this will occur only if natural gas is discovered during the exploration phase. The landowner, believing that the energy company’s interest in the site is a good indication that gas ispresent, is tempted to develop the field herself. To do so, she must contract with local experts in natural gas exploration and development. The initial cost for such a contract is $300,000, which is lost forever if no gasis found on the site. If gas is discovered, however, the landowner expects to earn a net profit of $6,000,000. The landowner estimates the probability of finding gas on this site to be 60%.a. Use PrecisionTree to identify the strategy that maximizes the landowner’s expected net earnings from this opportunity.b. Perform a sensitivity analysis on the optimal…
Sandhill Holdings Inc., a publicly listed company in Canada, ventured into construction of a mega-shopping mall in Edmonton, which is rated as the largest shopping mall in North America. The company’s board of directors, after much market research, decided that instead of selling the shopping mall to a local investor who had approached them several times with excellent offers that he steadily increased during the year of construction, the company would hold this property for the purposes of capital appreciation and earning rental income from mall tenants. The construction of the mall ended on December 31, 2019. Sandhill Holdings retained the services of a real estate company to find and attract many important retailers to rent space in the shopping mall. The shopping mall was fully occupied soon after construction was completed.According to the company’s accounting department, the total construction cost of the shopping mall was $50 million. The company used an independent appraiser to…
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