posted by Nilu
Parsa Real Estate is a company that buys and rents real estate. The company is looking into buying an office building for $1M.Thebuilding has 10,000 square feet of rentable office space.
The company analysts predict that they can rent the office space for $6 per square foot per month, but demand is a function of price in the following way:
(Rentisindollarspersquarefootpermonth.Also,at$6.00,Oscarthinkshecanfillabout80% Of the office space.)
The building needs to be maintained (security, insurance, maintenance, etc.), which costs $10,000 per month regardless of occupancy. Also, there is a variable cost of $2 per month for each square foot occupied.
Define there turn on invested capitals the ratio of the profits (PERYEAR)and the invested capital. You can drawan ROIC tree in the same way that we drew a KPI tree in class.Simply have the ROIC as“the root”of the tree instead of profits. Then answer the following questions.
HINT: ROIC = (revenues - costs) / invested capital. Use occupancy rate to determine revenues; use fixed and variable costs to determine costs
New ROIC (in decimal form):
ROIC = (revenues - costs) / invested capital
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