Reference no: EM133188245
Question - A real estate developer is considering the purchase a large 20 acre piece of farmland for $4 million. It will cost an additional $7 million to install roads, sidewalks, and utilities (water, hydro, gas, storm & sanitary sewers). The developer is planning on allocating these costs based on acreage.
At the end of the process, the farmland will be converted and zoned into three types of land: industrial, commercial and residential. At this point, the developer plans on further developing the land into industrial buildings, commercial buildings and residential buildings.
In order to encourage the real estate developer to develop this land, the City Council is allowing the developer to choose the zoning for this farmland project. The developer can either choose either residential, commercial or industrial zoning, or any combination of the three options.
Information about developing the 20 acres of land is as follows
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Industrial
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Commercial
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Residential
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Final Selling Price per building (in $)
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5.0 million
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3.0 million
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$800,000
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Variable cost per building (in $)
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3.2 million
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1.7 million
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$600,000
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Land required per building (in acres)
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1 per 3 acres
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1 per 2 acres
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10 per acre
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Maximum potential demand (in buildings)
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2
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4
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100
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Required - Make a recommendation to the developer. Include both quantitative and qualitative considerations.
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