You are the judge in a settlement case. You need to compute the value of a piece of land in Denver Co. The valuation is subject to the following conditions
- The settlement will take place at the end of 2019
- The current appraised value of the land on 1/1/2018 is $500.000
- The piece of land has a building on it that is uninhabitable. It takes one year to bring the building down at a cost of $100,000. That money must be paid now.
- The land can be rented in 2019 at a net proceeds of 40,000
- While rented the land cost $20,000 in property taxes
- Your real estate adviser notes that selling prices of comparable lands in Denver have declined, in real terms, at an average rate of 3% per year over the last 5 years.
- The cost of capital is 10%
- The sale of the land at the end of 2019 is subject to a 10 % commission.
What should someone pay today for this land if given the choice?