Question: 1. (Sunk costs) We return to the sunk cost example of Section 6.2. You have invested $100,000 in a badly built house. For $20,000 invested

1. (Sunk costs) We return to the sunk cost example of Section 6.2. You have invested $100,000 in a badly built house. For $20,000 invested today, you can fix up the house and sell it 1year from today for $90,000. As an alterna-tive, you can sell the house today for $60,000.

a. Should you take into account the $100,000 cost already invested in thehouse?

b. If the relevant discount rate is 9%, which alternative should you prefer?

c. What is the discount rate that makes you indifferent between the two alternatives?

Please use excel and show all formulas used for equations. Thank you.

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