A real-estate developer seeks to determine the most economical height for a new office building. The building will be sold after five years. The relevant net annual revenues and salvage values are as follows:(a) The developer is uncertain about the interest rate (i) to use but is certain that it is in the range of 5% to 20%. For each building height, find the range of values of i for which that building height is the most economical.
(b) Suppose that the developer€™s interest rate is known to be 15%. In terms of PW, what would be the cost of an error in overestimation of resale value such that the true value is 10% lower than the original estimate?

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Height 4 Floors $1,250,000 $2,000,000 2 Floors $500,000 $199,100 3 Floors 5 Floors First cost (net after tax) Lease revenue Net resale value (after tax) $750,000 $378,150 $169,200 $149,200 $600,000 $900,000 $2,000,000 $3,000,000