Tony the builder is planning to build an apartment building in Vermilion. The municipality will allow Tony to
construct a building to a maximum of 40 units, with a maximum of 1,000 square feet per unit. Construction costs are $180 per square foot, and include the 18% profit that Lloyd hopes to make. There will also be a charge of $4,000 per unit that goes to the town of Vermilion to cover the development costs incurred by the town. The land that Tony proposes to build the apartment building on is a 2 acre lot. Tony expects that all the units will be sold for $315,000 each upon completion of construction.
1) If the price of the lot is $1.25 million, will Tony be able to realize the profit he had hoped for?
2) Assume that Tony has purchased the lot at its residual value, but that he only sells half of the units upon completion of construction, and does not sell the remaining half until 1 year later. Using a discount rate of 11%, how much money is Lloyd's profit reduced by?
Show the solution.
1) If the price of the lot is $1.25 million, will Tony be able to realize the profit he had hoped for? fo answer this... View the full answer