Nabil is considering buying a house while he is at university. The house costs 125,000 dollars today. Renting out part of the house and living in the rest over his five years at school will net, after expenses, 1,500 dollars per month. He estimates that he will sell the house after five years for 136,000 dollars. If Nabil's MARR is 18%, compounded monthly, should he buy the house? Use present worth analysis (Perform all calculations using 5 significant figures and round any monetary answers to the nearest dollar). What is the present worth of this project? Number Should Nabil buy the house (type in 'yes' or 'no')?
Nabil is considering buying a house while he is at university. The house costs 125,000 dollars today. Renting out part of the house and living in the rest over his five years at school will net, after expenses, 1,500 dollars per month. He estimates that he will sell the house after five years for 136,000 dollars. If Nabil's MARR is 18%, compounded monthly, should he buy the house? Use present worth analysis (Perform all calculations using 5 significant figures and round any monetary answers to the nearest dollar). What is the present worth of this project? Number Should Nabil buy the house (type in 'yes' or 'no')?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Nabil is considering buying a house while he is at university. The house costs 125,000 dollars today. Renting out part of the
house and living in the rest over his five years at school will net, after expenses, 1,500 dollars per month. He estimates that he
will sell the house after five years for 136,000 dollars. If Nabil's MARR is 18%, compounded monthly, should he buy the house?
Use present worth analysis (Perform all calculations using 5 significant figures and round any monetary answers to the nearest
dollar).
What is the present worth of this project? Number
Should Nabil buy the house (type in 'yes' or 'no')?
Expert Solution
Step 1: Define present value
Present value is the value of investment in today's dollar.
Future value is the value of investment at the end of planning horizon.
TVM is the time value of money.
TVM factor table is used to calculate the value of factors.
Present value is calculated as:-
PV = FV/(1 + i)n
Where, PV is the present value
FV is the future value.
i is the interest rate.
n is the time period.
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