Ajax investment company is considering the purchase of land that could be developed into a class a office project. at the present time, ajax believes that the site could support a 300,000 rentable square foot project with average rents of $20 per square foot and operating expenses equal to 40 percent of that amount. it also expects rents to grow at 3 percent indefinitely and believes that ajax should earn a 12 percent return (r) on investment. the building would cost $100 per square foot to build:
a. what would the estimated property value and land value be under the above assumptions?
b. if rents are suddenly expected to grow at 4 percent indefinitely, what would the property value and land value be now? what percentage change in land value would this be relative to the land value in (a)?

Suppose that a major city’s main thoroughfare, which is also an interstate highway, will be completely closed to traffic for two years, from january 2014 to december 2015, for reconstruction at a cost of $535 million. if the construction company were to keep the highway open for traffic during construction, the highway reconstruction project would take much longer and be more expensive. suppose that construction would take four years if the highway were kept open, at a total cost of $800 million. the state department of transportation had to make its decision in 2014, one year before the start of construction (so that the first payment was one year away). so the department of transportation had the following choices: (i) close the highway during construction, at an annual cost of $267.5 million per year for two years. (ii) keep the highway open during construction, at an annual cost of $200 million per year for four years. now suppose the interest rate is 80%. calculate the present value of the costs incurred under each plan.