You are thinking about purchasing some vacant land

You are thinking about purchasing some vacant land.  You expect to be able to sell the land ten years from now for $500,000.  What is the most you can pay for the land today if your required rate of return is 15 percent? What is the expected (annualized) return on this investment over the 10-year holding period if you purchase the land for $170,000?

Solution:  The maximum amount you ca……….

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You are considering the purchase of a small income-producing property for $150,000 that is expected to produce the following net cash flows:

End of Year                Cash Flow

• $50,000
• $50,000
• $50,000
• $50,000

Assume your required internal rate of return on similar investments is 11 percent.  What is the net present value of this investment opportunity?  What is the going-in internal rate of return on this investment?

Solution:  Using the cash flow function on a financial calculator and entering the information provided above, the NPV of this investment is $5,122………

Raw land at the edge of urban development that lacks the necessary permits for development is, in general, the most risky kind of real estate investment.  Defend or refute this assertion.

Solution: Evaluated against the two types of investment risk confronting real estate investors, uncertainty of costs and uncertainty of value, raw land lacking permitting can be viewed as the riskiest form of real estate investment. Raw land at the edge of urban development that lacks necessary permitting for develop………