Bill has been accepted into a university and is looking into his housing options. He...
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Bill has been accepted into a university and is looking into his housing options. He is considering purchasing a mobile home to live in for the 4 years he will be going to school. The initial purchase price for the mobile home is $30,000. Luckily, Bill knows two friends from high school who are willing to be his roommates and pay $300 per month, each. Bill figures that his lot rent will be $270 per month and taxes, utilities and insurance will be another $300 per month as well. Bills roommates will not pay utilities. Also, by buying the home, Bill will save $7,200 per year in rent, adding to his net returns. After the four years, Bill hopes to sell the home for $15,000. Assume straight-line depreciation over 7 years and a marginal tax rate of 20%. Bill requires a pre-tax rate of return of 10%.
What is the appropriate discount rate to calculate the NPV in this problem?
10%, 8%, 9%, 7%
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