Find the maximum that betty would be willing to pay for

Reference no: EM13391257

(a) Betty has no savings, but she can borrow at r = .05. What is the maximum that Betty would be willing to pay for an apartment building with the following characteristics. As always, you may leave your answer in expression form - no need to make the actual calculation.

• It earns $10,000 per year in rental income and Betty could expect the first $10,000 to come in exactly one year.

• It requires $3000 in regular annual maintenance and the previous owner just recently performed all the required annual maintenance.

• It will require a one-time upgrade of a new roof in 3 years at a cost of $50,000.

(b) Suppose that the roof replacement is actually expected to occur every 30 years. (So that it will need to be replaced in 3 years, again in 33 years, again in 63 years, etc). By how much, if at all, would this reduce Betty's willingness to pay?

Reference no: EM13391257

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