Affect the viability and completion of the project

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Applied Calculus for the Managerial, Life, and Social Sciences: A Brief Approach
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Chapter 3 / Exercise 82
Applied Calculus for the Managerial, Life, and Social Sciences: A Brief Approach
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affect the viability and completion of the project. Developers need to have reasonable reward/compensation to cover the required profit and risks involved. This is a single deduction and there is no way to isolate or apportion profit and risk.
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Applied Calculus for the Managerial, Life, and Social Sciences: A Brief Approach
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Chapter 3 / Exercise 82
Applied Calculus for the Managerial, Life, and Social Sciences: A Brief Approach
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21 4. Gross development value (expected sale price) $550,000 Less Renovation cost $150,000 Profit @ 10% of GDV 55,000 205,000 Offer for this property $345,000 5. Expected Sale price $1,500,000 Less Building cost $750,000 Developer’s profit 150,000 Contingency 37,500 Finance cost 100,000 1,037,500 Amount available for land purchase $462,500
22 Suggested Answers to Week 11 Tutorial Questions Leasehold Valuation 1. a) n i PV PMT FV 10 4 0 0.0833 -1 + 0.06 0.1433 Taking inverse = 6.9788 b) n i PV PMT FV 20 3.5 0 0.0354 -1 + 0.11 0.1454 Taking inverse = 6.8794 c) n i PV PMT FV 9 3 0 0.0984 -1 + 0.07 0.16843 Taking inverse = 5.9370 2. a) n i PV PMT FV 15 3 0 0.0538 -1 ÷ 0.67 0.0802 + 0.11 0.1902 Taking inverse = 5.2563 b) n i PV PMT FV 9 2.5 0 0.1005 -1 ÷ 0.65 0.1545 + 0.0675 0.22209 Taking inverse = 4.5035
23 c) n i PV PMT FV 15 3.5 0 0.0518 -1 ÷ 0.6 0.0864 + 0.09 0.1764 Taking inverse = 5.6697 3. Part 1 (without tax consideration) Profit rent = 400000 250000 = 150000 YP 10 years @ 8% & s.f. 3% 5.9798 Market value $896,965 Part 2 (with tax consideration) Profit rent 150000 YP 10 years @ 8%, s.f. 3% & tax @ 36% 4.6233 Market value $693, 488 4. a) Market yield analysis (without tax consideration) Value (price) = Profit rent x YP Value = Profit rent x i ASF 1 i + ASF = Profit rent Value i = Profit rent - ASF Value = 200,000 50,000 - 0.1546 500,000 = 0.1454 or 14.54% To be found separately using method shown in Question 1 above. Factors to be found separately using the calculator and process as shown in questions 1 & 2
24 b) Market yield analysis (with tax consideration) Value (price) = Profit rent x YP Value = Profit rent x tg ASF i 1 i + ASF x tg = Profit rent Value i = Profit rent - ( ASF x tg ) Value = 200,000 50,000 - (0.1546 x 1/(1-0.36)) 500,000 = 0.5844 or 5.84% 5. Starting from the expression: i + ASF i + 1 ) 1 ( n i i 1 ) 1 ( ] 1 ) 1 [( n n i i i i = 1 ) 1 ( ) 1 ( n n i i i n i i ) 1 ( 1 1 Taking inverse, i.e., ASF i 1 i i n ) 1 ( 1 1 Since i i n ) 1 ( 1 1 is the formula for YP single rate, it show that this formula has a hidden sinking fund element at the same rate of the leasehold yield as shown in the expression ASF i 1 From (a) above
25 6. Consider a freehold property let at full market rent of $100,000 p.a. net. If the capitalisation rate is 10%, it market value is: Net annual income $100,000 YP in perp @ 10% 10 Market value $1,000,000 If the investor’s marginal tax rate is 30%, then the net of tax valuation is: Net annual income $100,000 Less tax @ 30% 30,000 Net of tax income $ 70,000 YP in perp @ 7% 14.2857 Market value $1,000,000 The above example demonstrates that it does not matter if the freehold interest is valued with or without tax consideration, the answer is the same. Hence it is not necessary to consider the tax impact in a freehold valuation. Net of tax cap rate 1/0.10
26 Suggested Answers to Week 12 Tutorial Questions Life Interest & Statutory Valuations 1. Refer to PowerPoint files and references for answers. 2. Full market rent = $300 x 52 $15,600 Less outgoings & vacancy @ 24% 3,744 Net income 11,856 YP male aged 51 @ 6% 10.9924 Market value $130,325 3. Do it yourself by referring to the lecture PPT file. 4. Refer to the PPT files and references for answers.

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