1)The Johnson Family recently decided to renovate their basement putting in a nice basement suite....

Question

1)The Johnson Family recently decided to renovate their basement putting in a nice basement suite. They have decided to run an analysis to see if it was a good investment.

With credit line interest rates at 5%, they renovated and furnished the suite for $35,000.Revenue from the suite is expected to be $1000/month for an indefinite period of time. Assuming that the forecasts will be realized, calculate the present value of the revenue from the suite and discuss whether it was a good investment.

Calculate using Present Value= CF/(1+i)

or perpetuity also

Komalavalli · Accepted Answer

Calculation of perpetuity: 
Interest rate 5%, amount invested for renovating and furnishing the suite is 35000. Revenue from the suite is 1000/ month 
Yearly cash flow = 12,000
Present value = CF/ (1+i)
Present value = $12000/1+0.05 = $12,000/1.05 = 11,428.57
Here the present value is 11,428.

1)The Johnson Family recently decided to renovate their basement putting in a nice basement suite. They have decided to run an analysis to see if it was a good investment. With credit line interest...

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