The company Administracion Financiera SA de CV is currently engaged in the sale of real estate, and
Question:
The company Administracion Financiera SA de CV is currently engaged in the sale of real estate, and has been offered a piece of land with 100 hectares of the salable area at a price of $200,000,000; The company estimates that the development and sale of the lots will take 2 years. In the first year the company estimates that it will spend $100,000,000 in urbanization expenses and $25,000,000 for sales expenses (commissions), and in the second year,
the expenses will be $90,000,000 for development expenses and $35,000,000 for commissions.
According to the projections made by the company, revenues for the next 5 years are:
Currently the company pays taxes at a rate of 30%
The conditions for the purchase of the land are the following: pay $100,000,000 now and the rest in a term of 5 years, at an interest rate of 20% on unpaid balances (Traditional Form)
Should the company acquire the subdivided land?
What is the IRR of this project if the investment and financing decision are combined? 50% stockholders' equity, 50% liabilities.
Managerial economics applications strategy and tactics
ISBN: 978-1439079232
12th Edition
Authors: James r. mcguigan, R. Charles Moyer, frederick h. deb harris