Scenario: You’ve spent $20,000 searching for an investment property. Now, you’re considering investing in a cottage near Brighton Beach. You can buy the house for $300,000 with cash, earn $20,000 per year in rent and pay $8,000 per year in HOA, taxes, and other expenses. Assume you’ll be able to sell the house in ten years for $400,000 (the “salvage value”). Your second-best investment alternative would earn 6%.
Calculate in Excel the NPV and IRR of this investment. Explain in a few sentences whether or no this is a good investment and why.
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