A person considers buying a duplex. The purchase price is $125,000 (in "year 0") and legal and other costs are $5,000 (in "year 0"). A mortgage of $60,000 at a 7.25% annual interest rate can be taken out, which will be amortized in 10 years with equal payments (constant total payments) every year. (The person gets the mortgage in "year 0" and starts to repay it back in "year 1".) The rental income for the first year is estimated to be $6,000 and $12,000 for the second year. For all later years, the rent is assumed to increase by 6% per year. The annual maintenance costs are $1,000 in the first year and should be adjusted for inflation in later years. Painting is necessary in years 1, 6, 10 and costs $3,500 in "year 1", to be adjusted for inflation in later years. Property taxes are in the first year $1,050 and are increasing with inflation. The property is planned to be sold at the end of "year 10" for an amount of $200,000. Inflation is expected to be 3.75% per year.

Using a spreadsheet for this project and determining its net present value and internal rate of return. In this spreadsheet you must have:

a) Data section (the summary of the given information in the problem). (5 marks)

b) Cash flow analysis consisting of two sections: "Revenues" or "Inflows" and "Expenditures" or "Outflows". (10 marks)

c) Result section including the net cash flow, the net present values at 10%, 15% and 20% discount rates and the internal rate of return. Discuss in this section when this project is attractive and when it is not. (10 marks)

d) Using the Data, Table command, evaluate NPV for different rent increases. Particularly, for rent increases of 0%, 1%, ..., 6%. Use 10% discount rate. Is NPV sensitive to changes in rent increase? (5 marks)

e) Using the Data, Table command, evaluate NPV for different inflation rates. Particularly, for inflation rates of 0%, 1%,..., 6%. Use 10% discount rate. Is NPV sensitive to change in inflation rate? (5 marks)