Question

The assignment is to value an approved subdivision. The project is expected to be sold out in three years, selling eight lots late in the first year, four lots in the second year, and three lots in the third year. The lots will sell for $88,500 each the first year, $91,200 the second year, and $93,900 in the third year. From the sales proceeds, a 6% commission will be paid. The project will pay $10,000 in taxes in the first year, $4,000 in second year, and $2,000 in the third year. All other infrastructure costs are complete. Developers require a 25% return on investment. What is the value of the subdivision today, rounded to the nearest $100? Please provide step by step solution with labels.

Answer 1

The sales revenue and the costs associated with the project is shown in the following table

Net sales = Sales revenue - Sales commission - taxes paid

Sales revenue = Lots sold selling price per lot

The value of the subdivision is the present value of the net sales received over a period of 3 years.

Value of the subdivision = $ 875872.26