What will be the NPV of an investment if the following takes place?
You have undeveloped raw land that you decide to split into 17 parcels, and begin grading the parcels and putting the streets and underground utilities in mid June 2008. The infrastructure improvements are not completed until mid 2009.
You borrow $4,470,583.00 at 6% interest to complete and pay for the all the infrastructure improvements being comleted for the site.
In addition to the above, you also incur an additional 5% site development costs overhead for supervision of this work in the amount of $223,529.15.
Once all the work is completed in 2009, you wait until the market gets better and begin selling the parcels in the year 2011. The last parcel will be sold in the year 2014.
You incur interest expense on the loan at 6% until 2011, when you can pay the loan off from the sale of the first parcels.
$1,900,000.00 was drawn on the loan in 2008, and the balance of the loan was drawn in 2009 $2,570,583.00 and paid off in 2011.
You incur additional expense of 12% sales commission on all the parcels as they sell.
Year 2011 - sell 4 parcels receive $8,630,107.20
Year 2012 - sell 2 parcels receive $5,939,841.60
Year 2013 - sell 4 parcels receive $9,036,958.60
Year 2014 - sell 7 parcels receive $11,410,180.60
What is the NPV (net present value) of this property at 10% discount rate, 12% discount rate, 15% discount rate taking all of the above into consideration?
The expert finds the NPV for an investment of raw land.