On January 1, Pete Rowe bought a ski chalet for $51,000. Pete is renting the chalet for $55 per night. He estimates he can rent thechalet for 190 nights. Pete's mortgage for principal and interest is $448 per month. Real estate tax on the chalet is $500 per year. Peteestimates that his heating bill will run $60 per month. He expects his monthly electrical bill to be $20 per month. He pays $12 permonth for cable television.a. What is Pete's return on the initial investment for this year? (Round your answer to the nearest tenth percent.)Pete's return%b. Assume rentals drop by 30% and monthly bills for heat and electricity drop by 10% each month. What would be Pete's return oninitial investment? (Round your answer to the nearest tenth percent.)Pete's return%

Part a: Calculation of return on investment: Explanation: Rent of chalet for 190 nights=Rent of…

Answered: On January 1, Pete Rowe bought a ski…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

On January 1, Pete Rowe bought a ski chalet for $51,000. Pete is renting the chalet for $55 per night. He estimates he can rent the
chalet for 190 nights. Pete's mortgage for principal and interest is $448 per month. Real estate tax on the chalet is $500 per year. Pete
estimates that his heating bill will run $60 per month. He expects his monthly electrical bill to be $20 per month. He pays $12 per
month for cable television.
a. What is Pete's return on the initial investment for this year? (Round your answer to the nearest tenth percent.)
Pete's return
%
b. Assume rentals drop by 30% and monthly bills for heat and electricity drop by 10% each month. What would be Pete's return on
initial investment? (Round your answer to the nearest tenth percent.)
Pete's return
%

Expert Solution

Step 1

Part a:

Calculation of return on investment:

Explanation:

$\begin{array}{rcl} R e n t o f c h a l e t f o r 190 n i g h t s & = & R e n t o f c h a l e t p e r n i g h t \times p e r i o d o f r e n t \\ = & $ 55 \times 190 n i g h t s \\ = & $ 10, 450 \end{array}$

$\begin{array}{rcl} M o r t g a g e p r i n c i p a l a n d i n t e r e s t & = & $ 448 \times 12 \\ = & $ 5, 376 \end{array}$

$\begin{array}{rcl} H e a t i n g c h a r g e s & = & $ 60 \times 12 \\ = & $ 720 \\ E l e c t r i c i t y c h a r g e s & = & $ 20 \times 12 \\ = & $ 240 \\ C a b l e c h a r g e s & = & $ 12 \times 12 \\ = & $ 144 \end{array}$

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