Ever eager to acquire more classroom and office space, the central administration for TMU finds a suit$-$

able development site for a new mixed$-$use office, classroom and retail building a mere fifteen kilometres

from the intersection of Dundas and Yonge. They hire the Trump Corporation to develop their planned

facility, which TMU will purchase outright upon its completion. On the basis of a holding period of

five years, Eric, the primary partner, estimates that the building's annual effective gross income of

$$4,000,000\mathrm{.}00$ in it's first year of use by TMU will rise steadily for two subsequent years at the annual

$2$ Before responding to this question, consider the following facts, which may or may not be relevant to deducing the correct

answer. If we refer to manpower as labor and bulldozers as capital, then in developed counntries such as Canada, labor is

expensive and capital is$,$ in relative terms, cheap. The opposite is true in developing economies. The purchase price of a

new bulldozer in Canada runs between $$65,000\mathrm{.}00$ and $$120,000\mathrm{.}00$ CAD. The price of the same bulldozer in Honduras

and adjacent nations runs from approximately $$300,000\mathrm{.}00$CAD to $$400,000\mathrm{.}00$CAD inclusive of tariffs, and while the

cost of capital funds to finance such a purchase can carry an annual rate as high as $10\%$ in Canada, in Honduras and

nearby countries loans are not necessarily available to finance the purchase of capital equipment like bulldozers, but when

a loan is originated, it can carry an annual rate in excess of $25\%.$ The $2023$ Statistics Canada estimate of the average

hourly wage for unskilled labor in Canada is $$19\mathrm{.}56$CAD, while the wage per manhour of such labor is$,$ on average,

approximately $$1\mathrm{.}25$ in Honduras.

$3$ Your answer should rely on nothing except economic reasoning. Using any other basis for your answer, such as an

unsupported personal opinion, will receive no credit.

rate of $4\%$ and that total annual operating expenses plus capex costs will, over this same period, rise by

$2\%$ annually from a first year value of $$600,000\mathrm{.}00.$ Eric also forecasts that, beginning with their respec$-$

tive values in year three, effective gross income will rise in each of year four and five by $5\%$ whle annual

operating expenses plus capex costs will remain stable at their third year values in both years four and

five. This information is given to TMU's crack in$-$house staff of accountants, who also know that Ford

and Tory Equity Partners, which is providing the equity financing for the project, requires a six percent

annual return on its investment. Overwhelmed by the magnitude and complexity of this information,

the accountants call you in to do the calculations appropriate for estimating the current value of the

building upon completion.. Based on the extraordinary annual increase in TRSM tuition revenue, you

estimate that the growth in the value of the annual net operating income from the building, after the

fifth year of use, will be approximately the average annual growth rate over its first five years, over the

indefinite future. Prior to your briefing the TMU President and Provost, the accountants instruct you

to calculate:

a$.$ the annual net operating income $($NOI$)$ accruing to the building for each of its first five years of

TMU ownership

b$.$ the estimated market value of the building in the last year of the holding period

c$.$ based on discounted cash flow valuation, the maximum value TMU should bid for the building

today$28.$ Suppose a firm increases its labor usage and office space $($the only inputs used$)$ by $10\%$ and observes a $13\%$ increase in output. The firm has A$.$ increasing returns to scale. B$.$ constant returns to scale. C$.$ violated the law of diminishing marginal returns. D$.$ increased its average costs.