Question

In: Statistics and Probability

1. A real estate developer is assessing an area for future retail development. She believes it...

1. A real estate developer is assessing an area for future retail development. She believes it is only profitably to develop a retail outlet in this area if a medical facility or industrial facility is built in the general vicinity within the next 5 years. Typically industrial facilities precede the development of medical facilities. Using this knowledge and some market research, she has arrived at the following probabilities. The overall probability that an industrial facility will be built in the area in the next 5 years is 30%. If the industrial facility is built, she believe the probability that the medical facility is built is 40%. If the industrial facility is not built, she believes the probability that the medical facility will be built goes down to 20%. What is the probability of the following events?

a) neither am industrial facility or medical facility is built

b) only an industrial facility is built

c) only a medical facility is built

d) both an industrial facility and a medical facility is built

e) She also has arrived at the following net present values for her retail development project based on the 4 events above. Given these outcomes and the probabilities you calculated above, what is her expected NPV? Should she do the project?

EVENT NPV
neither a industrial facility or medical facility is built -10 Million
only an industrial facility is built 5 million
only a medical facility is built 3 million
both an industrial facility and a medical facility is built 20 million

f. Our real estate developer has learned that the probability that an industrial facility is built in the next 5 years has risen from 30% to 90%. Based on this, rework the problem and provide the new expected NPV of the project. Should she do the project?

Solutions

Expert Solution

orchestra answered 2 years ago
Next > < Previous

Related Solutions

A developer has 20 acres of real estate for a project. She has two projects to...
A developer has 20 acres of real estate for a project. She has two projects to consider for the land. She can only select one project as both require all 20 acres. The developer is looking at a 10-year time frame for this investment. The expected cash flows from the projects are described below: PROJECT A: Apartments with retail space. The project will require $1,140,927.00 invested today, and an additional $800,000.00 in one year. The project will generate a cash...
A developer has 20 acres of real estate for a project. She has two projects to...
A developer has 20 acres of real estate for a project. She has two projects to consider for the land. She can only select one project as both require all 20 acres. The developer is looking at a 10-year time frame for this investment. The expected cash flows from the projects are described below: PROJECT A: Apartments with retail space. The project will require $1,039,260.00 invested today, and an additional $800,000.00 in one year. The project will generate a cash...
Option #1: Case: Mayfield Real Estate Development Valuation Mayfield Real Estate Development is a company that...
Option #1: Case: Mayfield Real Estate Development Valuation Mayfield Real Estate Development is a company that owns and operates a number of real estate ventures. The company also engages in real estate acquisitions and sales of properties, some of which are properties the company no longer wishes to operate. Similar real estate firms earn a 15-percent rate of return. Mayfield reported the following earnings over the last five years: Year Operating Income Gain(Loss) on Sale of Assets Net Income 1...
A real estate developer is evaluating a 40-unit apartment development. The expected average occupancy is 90%....
A real estate developer is evaluating a 40-unit apartment development. The expected average occupancy is 90%. Cost of land: $1,200,000 Construction: $$4,800,000 Project Life: 25 years Maintenance: $100 per unit per year (regardless of weather a unit is occupied). Annual insurance and property taxes: $400,000 Required return: 12% per year (0.9489% per month) Assume that the building will have NO salvage value at the end of 25 years, BUT the land will appreciate at a rate of 5% per year....
Which of the following statement about the real estate development is FALSE ? Real estate development...
Which of the following statement about the real estate development is FALSE ? Real estate development includes five stages: land acquisition, construction, completion and occupancy, management and sales. The real estate development project subjects to the financial risk, scheduling risk and design risk in the construction stage. The most risky stage in the real estate development process is the sales stage. The most risky stage in the real estate development process is the land acquisition stage. Which of the following...
A real estate developer is considering investing in a shopping mall on the outskirts of Atlanta,...
A real estate developer is considering investing in a shopping mall on the outskirts of Atlanta, Georgia. Three parcels of land are being evaluated. Of particular importance is the income in the area surrounding the proposed mall. A random sample of four families is selected near each proposed mall. Following are the sample results. At the .05 significance level, can the developer conclude there is a difference in the mean income? Use the usual six-step hypothesis testing procedure.
You are a real estate developer and are trying to determine the EMV of your net...
You are a real estate developer and are trying to determine the EMV of your net commission from a sales call to a potential purchaser. Assume that your transportation cost is $1.45 per mile Assume that the sales call is 70 miles round trip Assume that your transportation time is 2.25 minutes per mile Assume that the value of your time for transportation is $55.00 per hour Assume that it will take 3 hours to meet with the potential purchaser...
(Revenue recognition- installment sales)The Garcia Corp is a real estate developer. In Year 1, it sold...
(Revenue recognition- installment sales)The Garcia Corp is a real estate developer. In Year 1, it sold a house to Michael Sukul for $200,000, in return for five yearly installments of $40,000 each, plus interest. The first installment was paid at the time of sale. The house cost Garcia $115,000 to build. Compute the revenue and cost of sales that Garcia would recognize each year from Year 1 to Year 5 if it used. A. Immediate recognition at time of sale...
A real estate developer wishes to study the relationship between the size of home a client...
A real estate developer wishes to study the relationship between the size of home a client will purchase (in square feet) and other variables. Possible independent variables include the family income, family size, whether there is a senior adult parent living with the family (1 for yes, 0 for no), and the total years of education beyond high school for the husband and wife. The sample information is reported below. Family Square Feet Income (000s) Family Size Senior Parent Education...
A real estate developer is interested in determining the relationship between family income (X) and the...
A real estate developer is interested in determining the relationship between family income (X) and the square footage of their home (Y). Seven families are randomly selected and the (X, Y) measurements are as follows: X ($1000) 22, 26, 45, 37, 28, 50, 56 Y (Sq Ft) 16, 17, 26 ,24, 22 ,21, 32 ? = 37.71, ? = 22.57 Sxx = 1017.43, Sxy = 351.14, Sxyy = 179.71 (a) Sketch a scatter plot and determine whether it is acceptable...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT