A property developer is considering taking advantage of the current increase in people working from home....
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A property developer is considering taking advantage of the current increase in people working from home. It believes that it is possible to create a block of 500 new 'personal distance' offices with high-speed interconnections and 'smart rooms' that will be attractive to employers once the pandemic threat recedes. The current estimate of the rental revenue per office unit per year is 41,250. The cost of servicing each office unit is 20,000 per year. The riskless rate of return - which is used by the project planners to discount all monetary flows - is 5%. If the project is undertaken this year, it will cost 67.5 million and generate revenue starting now. Once built, the offices are expected to generate the same annual costs and revenues forever. (a) What is the NPV if the project is undertaken now? (10 marks) A property developer is considering taking advantage of the current increase in people working from home. It believes that it is possible to create a block of 500 new 'personal distance' offices with high-speed interconnections and 'smart rooms' that will be attractive to employers once the pandemic threat recedes. The current estimate of the rental revenue per office unit per year is 41,250. The cost of servicing each office unit is 20,000 per year. The riskless rate of return - which is used by the project planners to discount all monetary flows - is 5%. If the project is undertaken this year, it will cost 67.5 million and generate revenue starting now. Once built, the offices are expected to generate the same annual costs and revenues forever. (a) What is the NPV if the project is undertaken now? (10 marks)
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Answer rating: 100% (QA)
SOLUTION To calculate the NPV of the project we need to discount the future cash flows to their pres... View the full answer
Related Book For
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman
Posted Date:
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