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A developer wants to acquire a 20-acre tract of land to develop. The developer requires an 18 percent before-tax rate of return on the investment and expects to sell each lot for a price of $10,000. There will be 4 lots per acre. Development costs are expected to be $5,000 per acre for the entire tract. Selling and other holding cost are estimated at $5,000 per acre for the entire development. The development is expected to take 5 years, with one-fifth of the development costs incurred each year. Based on current absorption rates, one-fifth will be sold each year. How much can the developer pay for the tract of land?

A developer wants to acquire a 20-acre tract of land to develop. The developer requires an 18 percent before-tax rate of return on the investment and expects to sell each lot for a price of…

 
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