Suppose a developer is interested in building a new apartment community. Through her market research, the developer has determined that the target market segment potential in year 1 consists of 100 households. The developer believes that the target market segment potential will grow by 5% annually over the next five years. If the developer projects a capture rate of 25% for each of the next five years, how many units does she plan on selling by the end of year 5?
A) 25 units
B) 125 units
C) 138 units
D) 175 units

Question

Quizplus · Accepted Answer

The target market segment potential in year 1 is 100 households. Assuming a capture rate of 25%, the developer expects to sell 25 units in year 1.

For the subsequent years, the developer expects the target market segment potential to grow by 5% annually. Therefore, in year 2, the target market segment potential will be 105 households (100 households multiplied by 1.05). Assuming a capture rate of 25%, the developer expects to sell 26.25 units in year 2.

Similarly, for year 3, the target market segment potential will be 110.25 households (105 households multiplied by 1.05), and the developer expects to sell 27.56 units (110.25 households multiplied by 0.25).

Using the same calculations, the developer expects to sell 28.94 units in year 4 and 30.39 units in year 5.

Adding up the units sold in each year gives a total of 138 units, which is the answer choice C.

Suppose a Developer Is Interested in Building a New Apartment