Question
You inherited a house in San Diego from a rich uncle. You need money now, so you are considering three options: * option A: sell
You inherited a house in San Diego from a rich uncle. You need money now, so you are considering three options: * option A: sell the house for $340,000 * option B: spend $75,000 on improving the house, after that sell it for $410,000. * option C: burn the house for insurance money. The house is insured for $247,000. Not selling the house is not a viable option. If you sell the house (options A and B), you will have to pay realtor's fees and taxes, which amount to 8% of the selling price. (For example, if you sold the house for $100,000, the total cost of fees and taxes will be $100,000*0.08=$8,000). If you burn the house, you'll have to hire a good lawyer to prove it was an accident. The lawyer will cost you $24,000 (you do not have to pay realtor's fees and taxes in this case).
Required: a) What is the value of each option? A=
B=
C= b) Which option should you choose? (enter 1 for A, 2 for B, 3 for C) c) What is the opportunity cost of options A and B? A=
B=
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