Question

Wayne is planning to sell the twenty-room apartment building he bought fifteen years ago, for which he paid $759,000. The real estate market in his area has been falling since that time, and the property has decreased in value by 3.8% every year. Wayne rents each of his apartments for $495 per month, and upkeep on the building costs him $26,400 annually. Assuming that Wayne has kept his apartment complex constantly three-quarters full, what will his net profit or loss be when he sells the building, to the nearest hundred dollars

Answer 1

Answer:

The net profit of Wayne will be $606,000.

Explanation:

Note: See the attached excel file for the calculation of the annual end of year value of the building.

From the attached excel file, we have:

Value of the building at the end of the year 15 = $424,490.38

From the question, we can have:

Annual revenue from the building = Monthly rent * Number of rooms * Number of months in a year * three-quarters = $495 * 20 * 12 * (3/4) = $89,100

Annual cost of upkeep on the building = $26,400

Total profit from renting out the building = (Annual revenue from the building - Annual cost of upkeep on the building) * Number of years = ($89,100 - $26,400) * 15 = $940,500

Therefore, we have:

Net profit (loss) when Wayne sells the building = Value of the building at the end of the year 15 + Total profit from renting out the building - Cost of the building = $424,490.38 + $940,500 - $759,000 = $605,990.38

Rounding to the nearest hundred dollars as required, we have:

Net profit (loss) when Wayne sells the building = $606,000

Therefore, the net profit of Wayne will be $606,000.

Download xlsx

Answer 2

$606,000 on edge 2021 c: