Answer:
$300,000
Explanation:
Calculation to determine what would the land value be at the completion of the construction, under the real options approach
First step is to calculate the property worth
If NOI =$160,000
Capitalization rate = 10%
Property will worth =$160,000/10%
Property will worth =$1,600,000
Land value = $1,600,000 - $1,000,000 = $600,000
Second step is to calculate the property worth $
If NOI =$80,000
Capitalization rate = 10%
Property worth=$80,000/10%
Property worth =$800,000
Land value of $800,000 will be 0 reaosn been that the property cost is lower than the construction cost Base
Now let calculate the land value
Land value = 50%($600,000) + 50% ($0)
Land value = $300,000
Therefore what would the land value be at the completion of the construction, under the real options approach is $300,000
