Ajax investment company is considering the purchase of land that could be developed into a class a office project. at the present time, ajax believes that the site could support a 300,000 rentable square foot project with average rents of $20 per square foot and operating expenses equal to 40 percent of that amount. it also expects rents to grow at 3 percent indefinitely and believes that ajax should earn a 12 percent return (r) on investment. the building would cost $100 per square foot to build:
a. what would the estimated property value and land value be under the above assumptions?
b. if rents are suddenly expected to grow at 4 percent indefinitely, what would the property value and land value be now? what percentage change in land value would this be relative to the land value in (a)?