A friend of yours bought a small apartment building for $100,000 in a college town. She spent $10,000 of her own money for the building and obtained a mortgage from a local bank for the remaining $90,000. The annual mortgage payment to the bank is $10,500. Your friend also expects that annual maintenance on the building and grounds will be $15,000. There are four apartments (two bedrooms each) in the building that can each be rented for $360 per month. Refer to the seven-step procedure to answer these questions: (a) Does your friend have a problem? If so, what is it? (b) What are her alternatives? (Identify at least three.) (c) Estimate the economic consequences and other required data for the alternatives in Part (b). (d) Select a criterion for discriminating among alternatives, and use it to advise your friend on which course of action to pursue. (e) Attempt to analyze and compare the alternatives in view of at least one criterion in addition to cost. (f) What should your friend do based on the information you and she have generated?
A friend of yours bought a small apartment building for $100,000 in a college town. She spent $10,000 of her own money for the building and obtained a mortgage from a local bank for the remaining $90,000. The annual mortgage payment to the bank is $10,500. Your friend also expects that annual maintenance on the building and grounds will be $15,000. There are four apartments (two bedrooms each) in the building that can each be rented for $360 per month. Refer to the seven-step procedure to answer these questions: (a) Does your friend have a problem? If so, what is it? (b) What are her alternatives? (Identify at least three.) (c) Estimate the economic consequences and other required data for the alternatives in Part (b). (d) Select a criterion for discriminating among alternatives, and use it to advise your friend on which course of action to pursue. (e) Attempt to analyze and compare the alternatives in view of at least one criterion in addition to cost. (f) What should your friend do based on the information you and she have generated?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A friend of yours bought a small apartment building for $100,000 in a college town. She spent $10,000 of her own money for the building and obtained a mortgage from a local bank for the remaining $90,000. The annual mortgage payment to the bank is $10,500. Your friend also expects that annual maintenance on the building and grounds will be $15,000. There are four apartments (two bedrooms each) in the building that can each be rented for $360 per month.
Refer to the seven-step procedure to answer these questions:
(a) Does your friend have a problem? If so, what is it?
(b) What are her alternatives? (Identify at least three.)
(c) Estimate the economic consequences and other required data for the alternatives in Part (b).
(d) Select a criterion for discriminating among alternatives, and use it to advise your friend on which course of action to pursue.
(e) Attempt to analyze and compare the alternatives in view of at least one criterion in addition to cost.
(f) What should your friend do based on the information you and she have generated?
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