Case study

1. Mr. Ramesh owns a plot of land on which he intends to construct apartment units for
sale. Number of apartments to be constructed may be either 10 or 15. Total
construction costs for these alternatives are estimated to be Rs. 600 lacks or Rs.1025
lacks respectively. Current market price for each apartment is Rs. 80 lacks. The
market price after a year will depend upon the conditions of the market. If the market
is buoyant, each apartment unit will be sold for Rs.91 lacks and if it is sluggish, the
sale price for the same will be Rs.75 lacks. Determine the current value of vacant plot
of land. Should Ramesh start construction now or let the land vacant? The yearly
rental per apartment unit is Rs.7 lacks and the risk free interest rate is 10% per annum.
Assume that the construction cost will remain unchanged.
2. Assume that you have been put in charge of devising an acquisition strategy for your
firm. What action would you take to make the strategy a success for your
stockholders?
3. Managers involved in making acquisition often argue that the immediate response of
stockholders to acquisition announcements is flawed because stockholders do not
have the information to make this judgment. Do you agree?
4. Assume that you have been hired to a not-for –profit organization. Do you still need
an objective? How would you come up with an objective and put it into practice in
decision making in the organization?