The owner of a corner lot wants to fiind a use that will yeild a desirable retur

Question

The owner of a corner lot wants to fiind a use that will yeild a desirable return on his investment. After much study and calculation, the ower decides that the two best alternatives are to "build gas station" or to "build soft ice cream stand". First Cost- (to build: $80,000) (to build soft ice cream stand: $120,000) Annual property taxes- ( to build: 3,000) (to build soft ice cream stand: 5000) Annual income- (to build:11,000) (to build soft ice cream stand: 16,000) Life of building in years- (to build:20) (to build soft ice cream stand: 20) Salvage value- (to build: 0) (to build soft ice cream stand: 0) If the ower wants a minumum attractive rate of return on his investment of 6%, which of the two alternatives would you recommend?

Explanation / Answer

best alternatives is to "build gas station as it has more NPV than soft icecream stand so best alternatives for owner is to "build gas station

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