Bill has been accepted into a university and is looking into his housing options. He is

considering purchasing a mobile home to live in for the $4$ years he will be going to school.

The initial purchase price for the mobile home is $$35,000.$ Luckily, Bill knows two friends

from high school who are willing to be his roommates and pay $$450$ per month, each. Bill

figures that his lot rent will be $$270$ per month and taxes, utilities and insurance will be

another $$300$ per month as well. Bill's roommates will not pay utilities. Also, by buying the

home, Bill will save $$7,200$ per year in rent, adding to his net returns. After the four years,

Bill hopes to sell the home for $$20,000.$ Assume straight$-$line depreciation over $7$ years and a

marginal tax rate of $20\%.$ Bill requires a pre$-$tax rate of return of $10\%.$ Keep it simple and do

annual cash flows.

What is the appropriate discount rate to calculate the NPV in this

problem?

a$.10\%$

b$.8\%$

c$.9\%$

d$.7\%$

Enter Response Here: $[$i$]$

$($ii$)$ What are the pre$-$tax net returns?

a$.$ $$3,960$

b$.$ $$8,928$

c$.$ $$11,160$

d$.$ $$3,168$

Enter Response Here:

$($iii$)$ What is the yearly allowable depreciation using the straight$-$line method?

a$.$ $$5,000$

b$.$ $$6,000$

c$.$ $$4,000$

d$.$ $$8,750$

Enter Response Here:

$($iv$)$ What is the capital gain$/$loss$?$

a$.$ $$5,000$

b$.$ $$1,000$

c$.$ $$20,000$

d$.$ $$35,000$

Enter Response Here:

$($v$)$ What is the life of the investment?

a$.5$ years

b$.8$ years

c$.4$ years

d$.7$ years

Enter Response Here:

$($vi$)$ What is the after$-$tax terminal value?

a$.$ $$20,000$

b$.$ $$0$

c$.$ $$35,000$

d$.$ $$19,000$

Enter Response Here:

$($vii$)$ What is the NPV$?$

a$.($$$11,848\mathrm{.}36)$

b$.$ $$11,243\mathrm{.}98$

c$.$ $$12,345\mathrm{.}67$

d$.$ $$11,848\mathrm{.}36$