You are considering building a small house for rent as an investment. The land costs $9,000, the materials costs $7,000, the equipment costs $6,500, and $4,000 additional working capital is required by the associated fees. It is expected that the house will result in rent of $8,000 per year for 10 years, at which time the land can be sold for $7,500, the house for $4,000, and the equipment for $5,000. All of the working capital would be recovered at the EOY 10. The annual expenses for maintenance and upkeep are estimated to total $3,200. Your other investment options have a MARR of 12% per year on projects of comparable risk, determine if you should invest in building this house. Use the AW method. a) The annual worth of the project is _____?

You are considering building a small house for rent as an investment. The land costs $9,000, the materials costs $7,000, the equipment costs $6,500, and $4,000 additional working capital is required by the associated fees. It is expected that the house will result in rent of $8,000 per year for 10 years, at which time the land can be sold for $7,500, the house for $4,000, and the equipment for $5,000. All of the working capital would be recovered at the EOY 10. The annual expenses for maintenance and upkeep are estimated to total $3,200. Your other investment options have a MARR of 12% per year on projects of comparable risk, determine if you should invest in building this house. Use the AW method. a) The annual worth of the project is _____?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 3E

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