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Suppose you own a condo at the beach that you can sell now for $165,000. If you wait 5 years and spend $45,000 to build
Suppose you own a condo at the beach that you can sell now for $165,000. If you wait 5 years and spend $45,000 to build a sea wall, you can sell your condo for $230,000. The interest rate on the loan to pay for the sea wall is 11%, and the $45,000 is borrowed at the end of year 2 and spent in a lump sum at that same time. The loan and its interest will be paid back when the property is sold. The discount rate is assumed to be 7%. What is the value of your condo if you wait 5 years, and which course of action should you take.
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