Problem $13-5$

A developer plans to start construction of a building in one year if at that point rent levels make construction feasible. At that time, the

building will cost $$1,000,000$ to construct. During the first year after construction would take place, there is a $60$ percent chance that

NOI will be $$150,000$ and a $40$ percent chance that the NOI will be $$75,000.$ In either case, NOI would be expected to increase at $2$

percent per year after the first year.

Required:

a$.$ What is the value of the land at the end of the year in both possible scenarios?

b$.$ How much should the developer be willing to pay for the land?

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Required A

What is the value of the land at the end of the year in both possible scenarios?