1) You are considering purchasing a townhouse that will cost you $250,000 today. You estimate that if you do, your expenses for each of the next two years will be $6,000 less than if you rented an apartment. You think that you would be able to lease the townhouse to another college student afterward for $12,000 per year. You expect to lease the townhouse for five years before you sell it, and you expect to be able to sell the townhouse for $275,000. Use Excel to create an NPV profile for this undertaking (e.g., create a graph of your results). Calculate the NPV of this investment for discount rates from 1% to 8% (e.g., 1%, 2%, 3% and so on). If it will cost you 3% to borrow money (e.g., use a discount rate of 3%), should you buy the townhouse? What if it will cost you 8% to borrow money? What is the IRR?

2) After some thought, you realize you will have to pay property taxes, maintenance, and other expenses for the townhouse of $5,000 per year. Create a second set of calculations that take into account these costs. If it will cost you 3% to borrow money (e.g., use a discount rate of 3%), should you buy the townhouse? What if it will cost you 8% to borrow money? What is the IRR?