Suppose that a site can be developed a rental property at a cost of $500,000 with a annual NOI of $65,000. Assuming the cap rates for the building and for the land are 10% and 8% respectively. Calculate the value of the land? O $187,500 O $155,622 O $123,159 O None of the given answers O $118,687

Suppose that a site can be developed a rental property at a cost of $500,000 with a annual NOI of $65,000. Assuming the cap rates for the building and for the land are 10% and 8% respectively. Calculate the value of the land? O $187,500 O $155,622 O $123,159 O None of the given answers O $118,687

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows

Section: Chapter Questions

Problem 19P

See similar textbooks

Related questions

Q: A man planned of building house. The cost of construction is P500,000 while annual maintenance cost…

A: Capitalized cost refers to the present worth of cash flows which go on for an infinite period of…

Q: The construction cost of a permanent water park is $550,000. Annual maintenance and operation costs…

A: Note: As per the policy, we are supposed to solve one question at a time. Kindly repost the other…

Q: Consider the following after-tax cash flows: (a) Compute the project balances for Projects A and D,…

A: Cash flows are the cash and cash equivalents that flows in and out of the business in a particular…

Q: Estimate the approximate before-tax rate of return (ROR) for a project that has a first cost of…

A: Introduction: Return on investment: Return on investment is the measurement of the performance of…

Q: If a Cross-Fit project is at the end of its 5-year tenure in a rented building, worth BDS $1500.00…

A: The residual value, also popularly referred to as salvage value, is the determined value of a fixed…

Q: The exit price of an asset is RO 10,000 and the cost of disposal of the asset is RO 150. The asset…

A: Net realizable value is defined as estimated selling price less cost of disposal.

Q: You need to know whether the building of a new warehouse is justified under the following…

A: Net present worth can be calculated as follows:-

Q: A company that decides to value a project in which it wants to enter, presents the information in…

A: NPV means PV of net benefits which will arise from the project in coming years. It is equal to the…

Q: Jitihadi Itd intends to invest in a project whose cost is sh 1,200,000. The project is expected to…

A: Calculation of annual cash profits of the project: Cash profit is determined by deducting…

Q: BBL Inc. is considering an equipment for its new factory. It can either purchase the equipment for…

A: In the given question we are provided with the information of BBL Inc. With the given information in…

Q: Using the ERR method and a 17% MARR, determine the acceptability of a 10-year manufacturing project…

A: MARR = 17℅ REINVESTMENT RATE = 14℅ Year Time to Maturity Outflows Inflows 0 10 2,800,000 1…

Q: A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated…

A: MACRS is Modified Accelerated Cost Recovery System which is the tax depreciation system where…

Q: . Determine the capitalized cost of a small public market if the structure has a fir. ost of P20M, a…

A: Capitalized cost is the technique of recognizing the amount incurred as an expenditure which is…

Q: Optimum Properties Corp. is considering the construction of a 50-unit condominium near the…

A: The Internal Rate of return: The internal rate of return is the capital budgeting technique used to…

Q: The initial investment of a project is OMR 50,000. The profit after interest and tax (Cash inflows)…

A: Option a is correct.

Q: Compare the alternatives shown on the basis of their capitalized costs using a MARR of 10% per year.…

A: The capitalized-equivalent-worth approach, also known as Capitalized Cost (CC) Analysis, determines…

Q: The initial cost of a building is $ 125,358, its annual rental income will be $ 17,777 and its…

A: Given information: Initial cost : $125,358 Annual income : $17,777 Annual expenses : $8,147 Salvage…

Q: An asset in the five-year MACRS property class cost $100,000 and has a zero estimated salvage value…

A: Present worth is the worth in current time of the amount which is expected to be received in some…

Q: The following table summarizes the financial data for a proposed new asset. The issue is how long…

Q: Assume the total sales price and cost of a property are $2,000,000 and $1,100,000, respectively, so…

A: Installment method: This method distribute the cash receipt between cost recovered and profit…

Q: A commercial building is proposed to be built in a subdivision. The initial cost is estimated to be…

Q: A mining company brings up a land purchase project for 61,000 TL in order to extract coal.The annual…

A: Interest Rate = 10% Cash Flows: Year Cash Flow 0 -61000 1 20000 2 20000 3 20000 4 20000…

Q: What is the Aftertax salvage value?

A: Book value as on date of sale =cost-accumulated depreciation =5,200,000(1-0.2-0.32-0.192-0.1152)…

Q: For the property with the capital cost of $71,220, and using the applicable income tax rate of 29%,…

A: If you sell an asset for greater than its UCC value (undepreciated value): DTE is negative (sale…

Q: A piece of land may be purchased for $610,000 to be strip-mined for the underlying coal. Annual net…

A: Introduction: To decide if the project is desirable, we have to calculate net present worth of this…

Q: You are considering the purchase of an industrial building for $10,450,000 today. Below, you are…

A: Capitalization rate is the percentage of operating income generated by the property and the current…

Q: Calculate the capitalized cost of a project

A: Capitalized value is an cost on a hard and fast asset. This type of asset is incurred on cot basis…

Q: A commercial property has PGI of $10 million, expenses of 40% of EGI and the vacancy is underwritten…

A: PGI = $1,000,000 vacancy = 10% cap rate = 5% EGI Multiplier = 12x PGI Multiplier = 11x EGI = PGI…

Q: company is considering constructing a plant to manufacture a proposed new pre 0,000.00, the…

A: In this we have to calculate initial investment in projects and than calculate the payback…

Q: Robert Cooper is considering purchasing apiece of business rental property containing storesand…

A: The property belongs to a 39-year real-property class of MACRS. The property will be in use for a…

Q: A project requires the purchase of machinery for $40,000. The machinery belongs in a 20% CCA class…

A: Net present value (NPV): It is used to compute the current value of any future series of cash…

Q: You estimated the NOI of your building to be $271,000; with operating costs of $29,000 per year. If…

A: GIVEN ÷ NOI of building = $271000 Operating cost = $29000 Occupancy rate = 83%

Q: An investment of $800,000 is made in equipment that qualifies as 3-year equipment for MACRS-GDS…

A: NPV is the net current worth of cash flows that are expected to occur in the future.

Q: An investor is considering an investment property, but will only pay the price that will result in…

A: Expected IRR = 10% Cash Flows: Year Cash Flow 1 12000 2 12600 3 13230 4 203890

Q: Consider the following investment in a piece of land. Purchase price 500,000 Annual maintenance:…

A: Purchase price = 500,000 Annual maintenance = 5,000 Time Period = 8 Years Expected sale price =…

Q: You must evaluate the purchase of a proposed spectrometer forthe R&D department. The base price…

A: Given information: Cost of spectrometer is $140,000 Cost of another $30,000 to modify the equipment,…

Q: Delia Landscaping is considering a new 4-year project. The necessary fixed be depreciated on a…

A: One approach to capital budgeting is the net present value. Using net present value, one may…

Q: ompare three alternatives on the basis of their capitalized costs at i = 13% per year and select the…

A: Capitalized cost is the present value of all cost that may occur during the economic life of the…

Q: A corporate expects to receive $37,399 each year for 15 years if a particular project is undertaken.…

Q: You are evaluating the proposed acquisition of a new crane. Its basic price is $150,000 and will…

A: Since you have posted a question with multiple sub-parts, we will solve first three subparts for…

Q: company is considering constructing a plant to manufacture a proposed new product. The land costs…

A: In this we have to calculate the net profit and than calculate the annual rate of return.

Q: Consider an asset that costs $369,600 and is depreciated straight-line to zero over its 7-year tax…

A: cost of the asset = $369,600 Depriciation each year =$369,600/7 = 52800 Value of asset after 4 years…

Q: A firm is considering a nine-year project that requires an initial investment in fixed assets of…

Q: shes to calculate a project's present worth with estimated costs of Php 1.69M now and Php 350,000…

A: The answer has been mentioned below.

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Suppose that a site can be developed a rental property at a cost of $500,000 with a annual NOI of
$65,000. Assuming the cap rates for the building and for the land are 10% and 8% respectively.
Calculate the value of the land?
O $187,500
O $155,622
O $123,159
O None of the given answers
O $118,687

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
a firm is considering a 3-year project with an initial cost of $636,000. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $279,000. The tax rate is 35 percent , and the required return is 17 percent . An extra $23,000 of inventory will be required for the life of the project. Annual sales are estimated at $379,000 with costs of 247,000. What is the total cash flow for Year 3? A)$319,208.19 B)$315,189.32 C)$406,208.19 D)$423,008.24 E)$281782.87
A developer plans to purchase a vacant lot and build apartment units for which represent the highest and best use of the land. Assuming the anticipated NOI for the projected units for $850,000, the market-derived cap rates for the building and land are 11% and 9% respectively, and the projected value of the proposed building is 5,900,000. Based on the land residual technique, the land value would be. a. $2,166,667 b. $2,233,333 c. $2,600,000 d. $2,900,000 The answer falls outside of the range provided. not satisfied from previous answer need well explained , computated and formulated answer
A company that decides to value a project in which it wants to enter, presents the information in Figure 1. In addition, the investment in assets for 400 (Depreciable in straight line) and sale at the end for 205 value. Tax rate of 35%. What is the NPV of the project, if the WACC is 15% A.E.
An investor is considering the development of a recreational complex with the following relevant data initial cost is P54M estimated life is 15 years salvage value is P2 5M yearly costs for operations and maintenance is P3 5M annual property tax is 4% of first cost insurance premium (payable at the start of the year) is 2% of first cost expected yearly revenue is P15M If the investor applies a 10% MARR determine the annual worth of this venture
Thornley Co. is considering a 3-year project with an initial cost of $636,000. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $279,000. The tax rate is 35 percent, and the required return is 17 percent. An extra $23,000 of inventory will be required for the life of the project. Annual sales are estimated at $379,000 with costs of $247,000. What is the total cash flow for Year 3?
Lalaland Inc is considering a project that requires an investment of $21,000 in NWC (in year 0) and $121,000 in fixed assets (year 0), which has 30% CCA class. Assume CCA pool will remain open. The unlevered net income of project is $61,300 per year, over the 3 years life of the project. The tax rate is 35% and required rate of return is 16%. The fixed assets have a salvage value of 28,500 at the end of project (Year 3). NWC will be recovered at the conclusion of the Project (in Year 3). What is the NPV of this project?
Two alternatives are being considered for installation. Which should be selected based on an interest rate of 5.6% per year ? Alternative A Alternative B First Cost, $ 135,000 462,000 Annual Operating Cost, $/yr 76,000 34,600 Salvage value, $ 71,200 n/a Life, years 9 ∞
The following information relates to two projects of which you have to select one to invest in.Both projects have an initial cost of $400,000 and only one can be undertaken.Project X YExpected profits $ $Year 1 160,000 60,000Year 2 160,000 100,000Year 3 80,000 180,000Year 4 40,000 240,000Estimated resale value atthe end of year 4 80,000 80,000i) Profit is calculated after deducting straight line depreciationii) The cost of capital is 16%Required:a) For both projects, calculate the following:i) The payback period to one decimal place ii) The accounting rate of return using average investments iii) The net present value iv) Advise the board which project in your opinion should be undertaken, givingreasons for your decision.
An asset is planned to be purchased with an initial value of $400,000 and an estimatedsalvage value of $50,000 after 5 years of use. It will be depreciated using the straight-line method.With this asset $500,000 of annual income will be generated and there will beannual costs of $100,000The trem (minimum acceptable rate of return), m = 10% per yearThe annual tax rate is 40%Calculate the present value of this investment and make a recommendation. Please show your work
Using the ERR method and a 17% MARR, determine the acceptability of a 10-year manufacturing project that requires an initial investment of P2.8M with additional expenses of P1M and P3M at the end of the third and seventh year, respectively. Annual income from this project is P1.25M for ten years with all equipment to be sold for P0.5M after that time. Apply a 14% reinvestment rate. (Ans. Project is acceptable, 18.1%)
You are given opportunity to purchase product for $42, 000. The product will have annual operating expenses of $4,000, and a salvage value of $20,000 at the end of its useful life of 6 years. Assuming a discount rate of 9.0%, what is the minimum acceptable revenue to justify taking this project? A 1.01% B $333 C $2704 D $767 E $10704