A person wants to invest in property and therefore wants to consider purchasing a $75,000 condominium with cash. She decides to rent out the condominium for $10,200 per year. Her annual expenses for maintaining the condominium include the following—$1,500 for real estate taxes, $450 for insurance, $350 in repairs, $850 for one month of the condominium being vacant, $350 for advertisement costs for that period of vacancy, and $1,000 for the occasional bad tenant.Now suppose she wants to compare the rate of return from this investment (the condominium) with other potential investments. The initial investments and annual cash flows for the other options are shown below. Which is the better investment over that five-year period of ownership? Assume an MARR of at least 4%.| Investment Options | Initial Investment | Annual Cash Flows ||-----------------------|---------------------|----------------------|| Restaurant | 30,000 | 6,500 || Condo | 75,000 | 9,150 || Stock | 45,000 | 5,911 |Options:a. Do nothing.b. Select the Restaurantc. Select the Condod. Select the Stock

We will include the cash necessary for operations, as well as the costs incurred, as well as the profits from investing and financing activities, in the cash flow analysis.Solution:- Analyse the following table Name Initiial Investment Annual Cash Inflow Annual Expenditure Net Cash Inflow Condo 75000 10200 4500 5700 Restaurant 30000 6550 - 6550 Stock 45000 11900 - 11900 We can observe that stock provides the highest yearly return out of these three even without using a formula. MARR = 4% To calculate the overall profit or loss, we must first calculate the Present Value of the anticipated future cash inflows and then deduct these from the initial investment (NPV). NPV= Sum of all (Rt/(1+r)t) where Rt = Cash Flow at time t; r = discount rate expressed as a decimal; t = time period; applying the stock formula: Condo NPV(Net Present Value)= $(49,624) Restuarant NPV=$(840.56) Stock NPV= $7976.69 So, stock is the best option because it is less than compare to others. So, option 'd' is correct.

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person wants to invest in property and therefore wants to consider purchasing a $75.000 condominium with cash. She decides to rent out the condominium for $10,200 per year. Her annual expenses for maintaining the condominium include the following- 500 for real estate taxes, $450 for insurance, $350 in repairs, $850 for one month of the condominium being vacant, $350 for advertisement costs for that period of vacancy, and $1,000 for the occasional bad tenant. w suppose she wants compare the rate of return from this investment (the condominium) with other potential investments. The initial investments and annual cash flows for the other options are shown below. Which is the better investment over that five-year riod of ownership? Assume an MARR of at least 4%. at t 5 00 a. Do nothing. O b. Select the Restuarant O c. Select the Condo O d. select the Stock

person wants to invest in property and therefore wants to consider purchasing a $75.000 condominium with cash. She decides to rent out the condominium for $10,200 per year. Her annual expenses for maintaining the condominium include the following- 500 for real estate taxes, $450 for insurance, $350 in repairs, $850 for one month of the condominium being vacant, $350 for advertisement costs for that period of vacancy, and $1,000 for the occasional bad tenant. w suppose she wants compare the rate of return from this investment (the condominium) with other potential investments. The initial investments and annual cash flows for the other options are shown below. Which is the better investment over that five-year riod of ownership? Assume an MARR of at least 4%. at t 5 00 a. Do nothing. O b. Select the Restuarant O c. Select the Condo O d. select the Stock

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A person wants to invest in property and therefore wants to consider purchasing a $75,000 condominium with cash. She decides to rent out the condominium for $10,200 per year. Her annual expenses for maintaining the condominium include the following—$1,500 for real estate taxes, $450 for insurance, $350 in repairs, $850 for one month of the condominium being vacant, $350 for advertisement costs for that period of vacancy, and $1,000 for the occasional bad tenant.

Now suppose she wants to compare the rate of return from this investment (the condominium) with other potential investments. The initial investments and annual cash flows for the other options are shown below. Which is the better investment over that five-year period of ownership? Assume an MARR of at least 4%.

| Investment Options | Initial Investment | Annual Cash Flows |
|-----------------------|---------------------|----------------------|
| Restaurant | 30,000 | 6,500 |
| Condo | 75,000 | 9,150 |
| Stock | 45,000 | 5,911 |

Options:
a. Do nothing.
b. Select the Restaurant
c. Select the Condo
d. Select the Stock

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