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problem 13-5 A developer plans to start construction of a buliding in...

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Finance

problem 13-5 image
A developer plans to start construction of a buliding in one year if at that point rent levels make construction feasible. At that time the building will cost $1,160,000 to construct. During the first year after construction would take place, there is a 60 percent chance that NO/ will be $162,000 and a 40 percent chance that the NO/ will be $81,400. In either case. NO/ would be expected to increase at 2 percent per year after the first year. Required: How much should the developer be willing to pay for the land if he wants a 12 percent rate of return? (Round your answer to the nearest whole dollar amount.)

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