Yogajothi is thinking of investing in a rental house. The total cost to purchase the house, including legal fees and taxes, is $230,000. All but $40,000 of this amount will be mortgaged. He will pay $1500 per month in mortgage payments. At the end of two years, he will sell the house and at that time expects to clear $50,000 after paying off the remaining mortgage principal (in other words, he will pay off all his debts for the house and still have $50,000 left). Rents will earn him $2000 per month for the first year and $2400 per month for the second year. The house is in fairly good condition now, so he doesn't expect to have any maintenance costs for the first six months. For the seventh month, Yogajothi has budgeted $300. This figure will be increased by $50 per month thereafter (e.g., the expected month 7 expense will be $300, month 8, $350, month 9, $400, etc.). If interest is 6 percent compounded monthly, what is the present worth of this investment? Given that Yogajothi's estimates of revenue and expenses are correct, should he buy the house?

Yogajothi is thinking of investing in a rental house. The total cost to purchase the house, including legal fees and taxes, is $230,000. All but $40,000 of this amount will be mortgaged. He will pay $1500 per month in mortgage payments. At the end of two years, he will sell the house and at that time expects to clear $50,000 after paying off the remaining mortgage principal (in other words, he will pay off all his debts for the house and still have $50,000 left). Rents will earn him $2000 per month for the first year and $2400 per month for the second year. The house is in fairly good condition now, so he doesn't expect to have any maintenance costs for the first six months. For the seventh month, Yogajothi has budgeted $300. This figure will be increased by $50 per month thereafter (e.g., the expected month 7 expense will be $300, month 8, $350, month 9, $400, etc.). If interest is 6 percent compounded monthly, what is the present worth of this investment? Given that Yogajothi's estimates of revenue and expenses are correct, should he buy the house?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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