Mrs. Smith inherited a cabin from her parents plus $100,000 in cash. The cabin needs a complete remodel that will cost $100,000.

They rent the cabin out when they are not using it. Rent is collected by a management firm, netted against expenses, and paid to

Smith's semi-annually. The Smiths want to use their inheritance to fund their children's education. Mrs. Smith can sell the

cabin now in its current condition for $50,000 (after taxes) and invest the proceeds and the $100,000 at 5%. She could also make

the improvements to the cabin and wait to sell it when her children are ready to go to school. She would prefer to make the

improvements and wait so the family can use the cabin as long as selling the cabin later exceeds the proceeds from selling it now.

The Smith's would like you to recommend the approach.

Calculate the following

Net Present Value at 5%

Net Present Value at 10%

IRR