
The alternative that should be selected by the couple.

Answer to Problem 84P
Buying the house is an effective alternative.
Explanation of Solution
Calculation:
Alternative 1: Continue to rent the duplex home.
Determine the payment for year
Here, N is the number of months per year,
Substitute
Calculate the equivalent year
Here, f is the inflation rate.
Substitute
Calculate the equivalent interest rate.
Here,
Substitute
Calculate the present worth of house rent after
Substitute
Thus, the present worth of the house rent after
Alternative 1: Buying a house.
Calculate the mortgage interest rate per month.
Substitute
Calculate the number of payments.
Substitute
Calculate the down payment.
Substitute
Calculate the closing cost in constant dollars.
Substitute
Write the formula to Calculate the monthly payment.
Here, A is the monthly payment.
Substitute
Calculate the mortgage balance after
Substitute
Calculate the total amount paid in payments.
Here, N is number of years.
Substitute
Calculate the principal repayments.
Substitute
Calculate the interest payments.
Substitute
Calculate the monthly tax saving.
Substitute
Calculate the cost of mortgage after tax.
Substitute
Calculate the sale amount of the property after
Substitute
Calculate the net income from the sale.
Substitute
Calculate the present worth of home cost of owning house for year
Substitute
Thus, the present worth of cost of owning the house is
Conclusion:
Thus, buying the house is an affective alternative.
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Chapter 14 Solutions
ENGR.ECONOMIC ANALYSIS
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