How much should the developer be willing to pay

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Question - 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 $1,100,000 to construct. During the first year after construction would take place, there is a 60 percent chance that NOI will be $157,500 and a 40 percent chance that the NOI will be $79,000. In either case, NOI 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?

Reference no: EM133061018

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