Assume the home can be rented for $15,000 for the first year, with an annual 2 percent rental growth rate. Alternatively, it can purchased for $160,000 with a $35,000 down payment and financed with a fully amortizing mortgage loan of $125,000 at 2 percent interest for 30 years. Other costs associated with owning include maintenance costs of $450, insurance costs of $350, and property taxes of 3.5 percent of the purchase price. Assume the income tax rate is 21 percent. Growth rates for expenses including insurance, maintenance, and property taxes, are equal to 2.5 percent per year. The property value will grow at a rate of a constant 1.8 percent per year. After five years, the property will be sold. Selling expenses of 6 percent would have to be paid at that time. Be sure to show your work in Excel. In other words, do not simply type values into the boxes, but reference prior cells when calculating results. In your report, identify and explain the cash flow in each year, for owning relative to renting. If an annual after tax return of 20 percent is available on an investment of comparable risk, which is the better option, owning or renting?

I) Cash Flows from Selling
	Year	5
	Property value
	Selling costs
	Loan balance
	Benefit from sale
J) Net Cash Flows and IRR
	Years	0	1	2	3	4	5	IRR
	Cash flow