Question

Project A: This is a project for the use of commercial land the financier already owns. There are three mutually exclusive alternatives.

A1: Sell the land for $500,000

A2: Lease the property for a car-washing business. An annual income, after all costs (property taxes, etc.) of $98,700 would be received at the end of each year for 20 years. At the end of the 20 years, it is believed that the property could be sold for $750,000.

A3: Construct an office building on the land. The building will cost $4.5 million to construct and will not produce any net income for the first 2 years. The probabilities of various levels of rental income, after all expenses, for the subsequent 18 years are as follows:

Annual Rental Income		Probability
$1,000,000		0.1
$1,100,000		0.3
$1,200,000		0.4
$1,900,000		0.2

The property (building and land) probably can be sold for $3 million at the end of 20 years.

Analyze investment, if there is $4 million available for investment now (or $4.5 million if the Project A land is sold). What is the MARR in this situation?

Analyze investment, if there is $9 million available for investment now (or $9.5 million if the Project A land is sold).

Answer 1