Question

. A real estate developer wants to develop a commercial building lot. The marketing people investigate the area and determine a need for both a retail facility and a supermarket. A construction manager and the operation personnel come up with the following projections:

Retail Facility Supermarket

Size in square feet 95,000 20,000

Cost per square foot $64.45 $62.20

Total Cost $6.12 million $1.24 million

Economic Life 20 years 15 years

Projected yearly income $1 million $320,000

Required loan amount 150,000 50,000

The developer evaluates project using an interest rate of 15 percent as a measure of the cost of capital. Which project should she pursue?

Answer 1