Management is considering acquiring new office space by purchasing Zone


  

Management is considering acquiring new office space by purchasing Zone A property which would cost $5,000,000 to buy today.

It has been estimated they could sell the Zone A property in 8 years for $8,500,000.

They will have to take a loan and pay an interest rate of 7.5% on that loan.

a. What is the Present Value of the sale proceeds from the Zone A property?

b. Should the fund purchase the Zone A property and if so, why?

The health fund realize they could rent out part of the one A property that is surplus to requirements and receive rent of $350,000 per year.

  1. What is the Present Value of the sale proceeds from the Zone A property with  rent?

d. Should the fund purchase the Zone A property with rent and if so why?

They receive a new offer of another building, the Zone B property but with slightly different conditions.

  • It costs $500,000 less to purchase
  • The rent to be received would be   $150,000 less per year, however, the interest charged on the loan would be 1% less per year.

The Zone B property could be sold in 6.5 years, but they would receive $1,000,000 less than the Zone A property

  1. What  is the Present Value of the sale proceeds from the Zone B property? 

f. Which is more attractive, the Zone A property (with rent) or the Zone B property?

The health fund has surplus funds available of $3,000,000 and can invest the funds earning 8% per annum

  1. How long would it take for them to have enough money to purchase outright

i. The Zone A Property

ii. The Zone B Property

Purchase Evaluation (100 points)

Management is considering acquiring new office space by purchasing Zone A property which would cost $5,000,000 to buy today.

It has been estimated they could sell the Zone A property in 8 years for $8,500,000.

They will have to take a loan and pay an interest rate of 7.5% on that loan.

a. What is the Present Value of the sale proceeds from the Zone A property?

b. Should the fund purchase the Zone A property and if so, why?

The health fund realize they could rent out part of the one A property that is surplus to requirements and receive rent of $350,000 per year.

  1. What is the Present Value of the sale proceeds from the Zone A property with rent?

d. Should the fund purchase the Zone A property with rent and if so why?

They receive a new offer of another building, the Zone B property but with slightly different conditions.

  • It costs $500,000 less to purchase
  • The rent to be received would be      $150,000 less per year, however, the interest charged on the loan would be      1% less per year.

The Zone B property could be sold in 6.5 years, but they would receive $1,000,000 less than the Zone A property

  1. What is the Present Value of the sale proceeds from the Zone B property? 

f. Which is more attractive, the Zone A property (with rent) or the Zone B property?

The health fund has surplus funds available of $3,000,000 and can invest the funds earning 8% per annum

a. How long would it take for them to have enough money to purchase outright

ii. The Zone A Property

iii. The Zone B Property

The health fund finds it only has $2,75,000 to invest but can utilize an alternative investment and earn 9.5% per annum

  1. How long would it take for them to have      money to purchase outright
  2. The Zone A Property

iv. The Zone B Property

You must show all your calculations for credit. Your calculations for this assignment must be submitted as a separate Excel file. 

Prepare a PowerPoint presentation outlining all these scenarios and be sure to highlight the importance of the time value of money as one of the considerations.  

Make a recommendation as to which scenario you feel is the best option and outline your reasoning for that determination. Also, explain if you consider there may be other factors that should be considered.

The PowerPoint presentation must meet the following structural requirements. In addition to the slide presentation, submit the Excel spreadsheet with your calculations. 

Your presentation should meet the following structural requirements:

  • Organized, using professional themes and      transitions.
  • It should consist of nine slides, not      including the title and reference slides.
  • Each slide must provide detailed      speaker’s notes, with a minimum of 100 words per slide. Notes must draw      from and cite relevant reference materials. 
  • Provide support for your statements with      in-text citations from a minimum of six scholarly articles. Two of these      sources may be from the class readings, textbook, or lectures, but the      other four must be external. The Saudi Digital Library is a good place to      find these references.
  • Follow APA 7th edition and Saudi      Electronic University writing standards.
  • You are strongly encouraged to submit      all assignments to the Turnitin Originality Check prior to submitting them      to your instructor for grading. If you are unsure how to submit an      assignment to the Originality Check tool, review the Turnitin Originality      Check Student Guide.

The health fund finds it only has $2,75,000 to invest but can utilize an alternative investment and earn 9.5% per annum

  1. How long would it take for them to have      money to purchase outright
  2. The Zone A Property

iv. The Zone B Property

You must show all your calculations for credit. Your calculations for this assignment must be submitted as a separate Excel file. 

Prepare a PowerPoint presentation outlining all these scenarios and be sure to highlight the importance of the time value of money as one of the considerations.  

Make a recommendation as to which scenario you feel is the best option and outline your reasoning for that determination. Also, explain if you consider there may be other factors that should be considered.

The PowerPoint presentation must meet the following structural requirements. In addition to the slide presentation, submit the Excel spreadsheet with your calculations. 

Your presentation should meet the following structural requirements:

  • Organized, using professional themes and      transitions.
  • It should consist of nine slides, not including      the title and reference slides.
  • Each slide must provide detailed      speaker’s notes, with a minimum of 100 words per slide. Notes must draw      from and cite relevant reference materials. 
  • Provide support for your statements with      in-text citations from a minimum of six scholarly articles. Two of these      sources may be from the class readings, textbook, or lectures, but the      other four must be external. The Saudi Digital Library is a good place to      find these references.
  • Follow APA 7th edition and Saudi Electronic      University writing standards.
  • You are strongly encouraged to submit      all assignments to the Turnitin Originality Check prior to submitting them      to your instructor for grading. If you are unsure how to submit an      assignment to the Originality Check tool, review the Turnitin Originality      Check Student Guide.
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