Question

You are analyzing an office building to determine if it make sense to build it. the building and site improvements cost $145 and the investor requires a 6 percent return. if market rents are $11 per square foot. market vacancy and credit loss is 5 percent and expenses are 15 percent. what is market net operating income.

Answer 1

market net operating profit per square foot = $8.80

Step-by-step explanation:

total investment = $145 per square foot

the investor requires a 6% rate of return = $145 x 6% = $8.70 per square foot

total revenue per square foot = $11

proportional market vacancy and credit loss = $11 x 5% = ($0.55)

other expenses = $11 x 15% = ($1.65)

market net operating profit per square foot = $8.80

The project should be carried out since the net operating profit is larger than the investor's required rate of return.