Consider the Investment Evaluation of a Real Estate Development in Which

Consider the investment evaluation of a real estate development in which the property to be built is projected to reach stabilized occupancy at the end of Year 2 two years from the time the investment decision must be made and construction will begin) . The project is speculative in that there are no leases signed as of Time Zero the present, when the investment decision must be made) . The property level opportunity cost of capital is considered to be 9% for stabilized investments, and 10% for assets not yet stabilized lease-up investments) . Which of the following is true?

A) Property level before-tax cash flows beyond Year 2 should be discounted back to the end of Year 2 at 9%, and the projected stabilized asset value as of the end of Year 2 should be discounted two years to Time Zero at 10%.
B) Property level before-tax cash flows beyond Year 2 should be discounted back to the end of Year 2 at 10%, and the projected stabilized asset value as of the end of Year 2 should be discounted two years to Time Zero at 9%.
C) Property level before-tax cash flows beyond Year 2 should be discounted all the way back to Time Zero at the 10% rate.
D) Property level before-tax cash flows beyond Year 2 should be discounted all the way back to Time Zero at the 9% rate.