## Calculating Return on Investment (ROI) for Home Addition### Scenario:Your friend would like to add an addition to their home. Here are the details:- The home was originally purchased for $175,000.- The addition would cost $38,000.- You expect that the addition can improve its value by 4%.### Questions:1. What is the ROI (write as a percentage)?2. Is it a good idea (Yes or No, based on ROI)?### Explanation:To determine whether the home addition is a good investment, we need to calculate the Return on Investment (ROI). Here is the process:1. **Calculate the Expected Increase in Home Value:** - Original home value: $175,000 - Expected increase in value: 4% - Increase in value = $175,000 * 0.04 = $7,0002. **Calculate ROI:** - ROI formula: $(\text{Gain from Investment} - \text{Cost of Investment}) / \text{Cost of Investment}$ - Gain from Investment = $7,000 (increase in home value) - Cost of Investment = $38,000 (cost of addition) - ROI = $(7000 - 38000) / 38000 \times 100 = -81.58%$### Conclusion:2. Based on the ROI calculation, with an ROI of -81.58%, the addition does not seem to provide a positive return on investment. Therefore, it may not be a good idea to proceed with the addition considering purely financial factors.>**Note:** Financial decisions should consider various factors including long-term benefits, non-monetary value, and personal goals. This analysis is a basic financial assessment based on predicted value increase and addition cost.

The return on investment (ROI) is a financial metric that helps to measure the efficiency of an…

Your friend would like to add an addition to the home. The home was originally purchased for $175,000. The addition would cost $38,000. You expect the addition can improve its value by 4% 1. What is the ROI (write as a percentage)? 2. Is it a good idea (Yes or No, based on ROI)?

Your friend would like to add an addition to the home. The home was originally purchased for $175,000. The addition would cost $38,000. You expect the addition can improve its value by 4% 1. What is the ROI (write as a percentage)? 2. Is it a good idea (Yes or No, based on ROI)?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You are thinking of renovating a basement apartment beneath your house, which you currently rent out for $521 per month. If you renovate the apartment, you could get $729 per month instead, starting next month. Assume renovations would cost $10,000, paid immediately, and would take very little time to complete so there’d be no delay in rental income. Assume monthly rental income would last for the foreseeable future (aka forever). If the applicable discount rate is 6% per year, what is the net present value (NPV) of the renovations? Round to the nearest cent.
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Which of the following is a reason a borrower may want to refinance? O A. The borrower's house value declines O B. Lender's demand lower DTIS O C. Lender's demand lower LTVS O D. The borrower's credit score rises QUESTION 15 Jim has an annual income of $300,000. Jim is looking to buy a house with monthly property taxes of $1,200 and monthly homeowner's insurance of $300. Apple bank has a maximum front end DTI limit of 28%. Considering only the front end DTI limit, what is the most they will allow Jim to spend on a monthly mortgage payment? O A. $82,500.00 O B. $84,000.00 OC. $5,500.00 O D. $7,000.00 Click Save and Submit to save and submit. Click Save All Answers to save all answers. GZED

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