EXAMPLE 2-5 Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo- miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con- sidering a design that includes a 32-unit building on each lot. Data includes the following: Initial Costs Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot Legal fees, applications, permits, etc.: $80,000 Site clearing and preparation: $3000/acre Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre Construction costs: $3,000,000 per building. Recurring Costs Taxes and insurance: $5000/month per building Landscaping: 25% of lot at $1000/acre/month Security: $1000/building $1500/month Other costs: $2000/month' Revenue (assume 90% annual occupancy) Front lot units: $2500/unit/month Rear lot units: $1750/unit/month Other revenue: $5000/month Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost, annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying assumption of no changes to costs and revenues for 10 years, estimate the profitability of this prospective investment ignoring the effects of money's value over time.
EXAMPLE 2-5 Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo- miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con- sidering a design that includes a 32-unit building on each lot. Data includes the following: Initial Costs Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot Legal fees, applications, permits, etc.: $80,000 Site clearing and preparation: $3000/acre Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre Construction costs: $3,000,000 per building. Recurring Costs Taxes and insurance: $5000/month per building Landscaping: 25% of lot at $1000/acre/month Security: $1000/building $1500/month Other costs: $2000/month' Revenue (assume 90% annual occupancy) Front lot units: $2500/unit/month Rear lot units: $1750/unit/month Other revenue: $5000/month Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost, annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying assumption of no changes to costs and revenues for 10 years, estimate the profitability of this prospective investment ignoring the effects of money's value over time.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
Problem 10E
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Transcribed Image Text:EXAMPLE 2-5
Gaber Land Corp. is evaluating a 4-acre waterfront property for development into rental condo-
miniums. The front 2-acre lot is more expensive to purchase than the rear 2-acre lot, and condo
leases closer to the waterfront can be more expensive than those units in the rear. Gaber is con-
sidering a design that includes a 32-unit building on each lot. Data includes the following:
Initial Costs
Lot purchase prices: $400,000/acre front lot, $100,000/acre back lot
Legal fees, applications, permits, etc.: $80,000
Site clearing and preparation: $3000/acre
Paving roadways, parking, curbs, and sidewalks: 25% of total lot at $40,000/acre
Construction costs: $3,000,000 per building.
Recurring Costs
Taxes and insurance: $5000/month per building
Landscaping: 25% of lot at $1000/acre/month
Security: $1000/building $1500/month
Other costs: $2000/month'
Revenue (assume 90% annual occupancy)
Front lot units: $2500/unit/month
Rear lot units: $1750/unit/month
Other revenue: $5000/month
Answer the following: (1) Use the concept of the per-unit model to estimate the total initial cost,
annual cost, and annual revenue of this prospective project, and (2) If you made the simplifying
assumption of no changes to costs and revenues for 10 years, estimate the profitability of this
prospective investment ignoring the effects of money's value over time.
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