3. Doug has decided to purchase the rundown one-bedroom home next door in order to clean up the neighborhood and, he hopes, make a profit. He guesses that with $10,000 in improvements and repairs over the next 12 months, including the selling time, he can sell the property for $180,000. Realtor fees will be 6%. He has the cash necessary to make the purchase. In order for this to be worth his time, Doug wants to make 20%

on his investment before property taxes, insurance, and utilities costs. (LO 15-1)

a. What price should he offer to pay for the house?

b. As he starts into repairs, Doug discovers rotting floorboards throughout the first floor, running up his repair cost an additional $2,000. What will be his new asking price for the house?

c. Doug made the repairs in the floorboard, so his total investment in improvements and repairs was

$12,000. When he put the house on the market, he received an offer for $175,000. He purchased the house for $130,000 cash and did not have any other expenses. If he accepts the offer, what will be his ROI?