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1. the question says ‘…has gained planning permission for the dev of a housing complex….’
does this mean they have to permission to start construction or is it just ‘planning’?
2. this NPV refers to a different project and the option to buy a plot for 24m is a different project. correct?
i am first trying to understand what is happening.
thanks in advance
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had the same question,
still confused a bit since apparently the inital cost of 24 is added to the npv as measured as Pa .
Apperently 24m is not ”cost” per se but the value of the extra NCA it will acquire.
Mansoor, send me an email at marios.soteriou@gmail.com if you want to solve a few questions on skype etc, discuss any last minute SOS points.
Planning permission simply means that the state has given them permission to develop these houses. (In the UK you need to get permission to be able to build new houses, but once you have got the permission it is up to you when you decide to actually start doing amything).
The 24M does relate to the same project. If and when they do decide to go ahead, then they will have to pay 24M for the land and since the NPV will be 4M, then the PV of the returns are expected to be 28M.
Taxman: of course the 24M is a cost. The question specifically says that the price of the land will be 24M. If the exercise their option to buy it then it is certainly a cost 🙂
thank u sir!
one point tho: the question said that the npv calculated was for a 3 year project.
of what significance is this 3 year thing?
There is no relevance to the 3 years. (It would only relevant if you were given the cash flows each year and you had to calculate the PV’s, but that is obviously not the case here 🙂 )
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