Reference no: EM132983567
Question - Construct the expected annual cash flows (pro forma) assuming a 4-year holding period. Assume the cost to purchase the land occurs today, year 1; all costs to build/develop the project occur at the end of year 1; net operating income from renting the project is received at the end of years 2, 3, and 4; and the property is sold at the end of year 4.
1. Determine the project's overall value (both levered and unlevered) using direct cap and DCF analysis.
2. Determine the following key ratios for the project's first year of operations (yr. 2)
-the equity dividend rate, EDR, in yr. 2.
-the debt coverage ratio, DCR,in yr. 2
-the "return on cost,"(i.e., NOI/cost of development).
Compare the return on cost to what you view as a reasonable going-in market cap rate.
FINALLY - indicate the maximum price you are recommending the investing committee offer for the land that will enable the project to meet the developer's required return.
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