Question: Urban Housing Agency UHA is considering contracts with private developers
Urban Housing Agency (UHA) is considering contracts with private developers to provide low-income housing at various locations in the city. The startup costs to UHA for each location are $ 115,000, all of which must be paid to the developers in cash at the beginning. The housing rents would provide UHA net cash flows of $ 3,000 per month for the first 12 months, $ 4,000 per month for the following 12 months, and $ 5,000 for the remaining 12 months of a three-year contract. Urban only invests in projects that earn an annual rate of return of at least 12 percent. What rate of return would Urban earn on the contracts? Should Urban accept the contract? Why? Do not solve this problem using a financial calculator.
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