You bought a piece of land at $2,000,000. You plan to build a 80,000 square foot building at cost of $180 per square foot, all inclusive, in addition to land cost. The completed building is expected to generate a monthly net of $2.10 per square foot per month for year 1 and the rent will increase at 4% per year. The operating expenses will be 0.50 per square foot per month for year 1 and increase at 3% per year. At end of year 10, you plan to sell the property for $20,000,000. Assuming you will have an income tax rate of 35% every year and you will take depreciation charge every year based on the IRS allowed schedule of 1/39th of the building cost only per year. Your capital gain tax rate is 20%.
Required:
a. Assuming all cash investment and using a MARR of 8%, what is the Net Present Value of this 10-year investment and what is the IRR?