Your company is considering investing in a Build-To-Rent (BTR) residential construction project. This involves the design...

 

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Your company is considering investing in a Build-To-Rent (BTR) residential construction project. This involves the design and construction of a 12 floor apartment building, with the intent of retaining ownership of the building and renting out apartments to tenants for 10 years following completion of the building. You have been provided the following project information: ● There will be a total of 70 apartments spread across the 12 floors: 20% will be 1-bedroom apartments 50% will be 2-bedroom apartments o 30% will be 3-bedroom apartments The following costs are expected in the design, construction and maintenance of the project: o Design development costs of $600,000 at EOY 1 and EOY 2. o Construction costs of $20,000,000 at EOY 3, EOY 4 and EOY 5 o Ongoing maintenance costs equating to 10% of rental income from EOY 6 to EOY 15 • The following rental incomes are expected during the 10 year holding period of the building. It is assumed that these will not change over the project's life. o $250/week for 1 bedroom apartments $430/week for 2-bedroom apartments o o $700/week for 3-bedroom apartments At the end of the project life, it is assumed that the entire building will be sold for 30% more than the total construction costs that were paid at EOY 3, EOY 4 and EOY 5. Your company's MARR is 8% ● o o Based on the above information, answer the following questions: (a) Draw the cash flow diagram of this project (1 mark) (b) Is this project worth investment? Use the IRR method to confirm your answer. Please ensure you provide the IRR of the project. (4 marks) (c) Suppose that due to inflation, all cashflows (inflows and outflows) are increased by 15%. What is the new IRR value of the project? Does your decision from part (a) change? (1 mark) Your company is considering investing in a Build-To-Rent (BTR) residential construction project. This involves the design and construction of a 12 floor apartment building, with the intent of retaining ownership of the building and renting out apartments to tenants for 10 years following completion of the building. You have been provided the following project information: ● There will be a total of 70 apartments spread across the 12 floors: 20% will be 1-bedroom apartments 50% will be 2-bedroom apartments o 30% will be 3-bedroom apartments The following costs are expected in the design, construction and maintenance of the project: o Design development costs of $600,000 at EOY 1 and EOY 2. o Construction costs of $20,000,000 at EOY 3, EOY 4 and EOY 5 o Ongoing maintenance costs equating to 10% of rental income from EOY 6 to EOY 15 • The following rental incomes are expected during the 10 year holding period of the building. It is assumed that these will not change over the project's life. o $250/week for 1 bedroom apartments $430/week for 2-bedroom apartments o o $700/week for 3-bedroom apartments At the end of the project life, it is assumed that the entire building will be sold for 30% more than the total construction costs that were paid at EOY 3, EOY 4 and EOY 5. Your company's MARR is 8% ● o o Based on the above information, answer the following questions: (a) Draw the cash flow diagram of this project (1 mark) (b) Is this project worth investment? Use the IRR method to confirm your answer. Please ensure you provide the IRR of the project. (4 marks) (c) Suppose that due to inflation, all cashflows (inflows and outflows) are increased by 15%. What is the new IRR value of the project? Does your decision from part (a) change? (1 mark)

Answer rating: 100% (QA)

Draw the cash flow diagram of this project show your tabulation show the columns and rows The cash flow diagram for this project is shown below Design ... View the full answer