Question - An investor owns a lot that is suitable for either six or nine condominium units. The per unit construction costs of the building with six units are $80,000 and with nine units $90,000. Construction costs are the same whether construction takes place this year or next. The current market price of each unit is $100,000. The per year rental rate is $8,000 per unit (net of expenses), and the risk-free rate of interest is 12 percent per year. If market conditions are favorable next year, each condominium will sell for $120,000; if conditions are unfavorable, each will sell for only $90,000.
What is the value of the lot or when should he build the units?
To wait one year, what kind of analysis will be used?