A builder owns a plot of land that can be used for either nine or fifteen apartment units. The construction costs of these two alternatives are Rs. 9 million and Rs. 17 million respectively. The...

construction costs of these two alternatives are Rs. 9 million and Rs. 17 million respectively.

The current price per apartment is Rs. 1.2 million. The yearly rental (net of expense) per unit

is Rs.0.10 million and the risk-free interest rate is 10 percent per annum. If the market for

apartments is buoyant next year, each apartment unit will sell for Rs. 1.5 million; if the market

is sluggish each apartment unit will sell for Rs. 1.1 million. What is the value of the vacant

plot? Assume that the construction cost will remain unchanged.