You are thinking of renovating a basement apartment beneath your house, which you currently rent out for $529 per month. If you renovate the apartment, you could get $721 per month instead, starting next month. Assume renovations would cost $10,000, paid immediately, and would take very little time to complete so there’d be no delay in rental income. Assume monthly rental income would last for the foreseeable future (aka forever). If the applicable discount rate is 5% per year, what is the net present value (NPV) of the renovations? Round to the nearest cent.
Renovation Cost = $ 10000, Rental Income post Renovation = $ 721 and Discount Rate = 5 % per annum or (5/12) = 0.4167 % per month
Pre-Renovation Rental = $ 529
Therefore, NPV of Renovation = [(721-529) / 0.004167] - 10000 = $ 36076.31
You are thinking of renovating a basement apartment beneath your house, which you currently rent out...
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