Donald has made up his mind-he wants a pool in the family's backyard! He figures his...

 

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Donald has made up his mind-he wants a pool in the family's backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, they'll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates. 1. 2. 3. 4. 5. Cost of pool/installation Life of the pool (no salvage value) Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) Tax rate Average rate of return $52,302 20 years $6,900 Donald's daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes. 24% 8% "This is a no-brainer! We'll recover the cost of this pool in just 7 years, even though we plan to live here until we're old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, it'll be almost pure profit that we can put toward paying off the pool. I studied time value of money a little bit in college; the present value of this investment is positive, so therefore we should definitely move ahead with it. My family will think they're in heaven." To generate even more benefit from the pool, Donald is considering a full one-month (4 weeks) rental for the family's home. He realizes there are pros and cons to this scenario but figures it would be worth it to have one more option to discuss when he brings this up with his family. Under this scenario, determine the NPV of the investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to O decimal places e.g. 125.25. Enter negative amounts using either a negative sign preceding the number e.g. -45.25 or parentheses e.g. (45.25).) Donald has made up his mind-he wants a pool in the family's backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, they'll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates. 1. 2. 3. 4. 5. Cost of pool/installation Life of the pool (no salvage value) Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) Tax rate Average rate of return $52,302 20 years $6,900 Donald's daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes. 24% 8% "This is a no-brainer! We'll recover the cost of this pool in just 7 years, even though we plan to live here until we're old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, it'll be almost pure profit that we can put toward paying off the pool. I studied time value of money a little bit in college; the present value of this investment is positive, so therefore we should definitely move ahead with it. My family will think they're in heaven." To generate even more benefit from the pool, Donald is considering a full one-month (4 weeks) rental for the family's home. He realizes there are pros and cons to this scenario but figures it would be worth it to have one more option to discuss when he brings this up with his family. Under this scenario, determine the NPV of the investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to O decimal places e.g. 125.25. Enter negative amounts using either a negative sign preceding the number e.g. -45.25 or parentheses e.g. (45.25).) Donald has made up his mind-he wants a pool in the family's backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, they'll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates. 1. 2. 3. 4. 5. Cost of pool/installation Life of the pool (no salvage value) Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) Tax rate Average rate of return $52,302 20 years $6,900 Donald's daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes. 24% 8% "This is a no-brainer! We'll recover the cost of this pool in just 7 years, even though we plan to live here until we're old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, it'll be almost pure profit that we can put toward paying off the pool. I studied time value of money a little bit in college; the present value of this investment is positive, so therefore we should definitely move ahead with it. My family will think they're in heaven." To generate even more benefit from the pool, Donald is considering a full one-month (4 weeks) rental for the family's home. He realizes there are pros and cons to this scenario but figures it would be worth it to have one more option to discuss when he brings this up with his family. Under this scenario, determine the NPV of the investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to O decimal places e.g. 125.25. Enter negative amounts using either a negative sign preceding the number e.g. -45.25 or parentheses e.g. (45.25).) Donald has made up his mind-he wants a pool in the family's backyard! He figures his kids and spouse will be thrilled. However, to cover the cost of the pool, they'll have to pack up and live away from home for a few weeks during the summer to rent their home to vacationers. He crunched the numbers based on the following estimates. 1. 2. 3. 4. 5. Cost of pool/installation Life of the pool (no salvage value) Annual net cash inflows from renting (net of cash expenses for renting and pool maintenance) Tax rate Average rate of return $52,302 20 years $6,900 Donald's daughter, Sarah, found the above information written on a sheet of paper in his office, along with the following notes. 24% 8% "This is a no-brainer! We'll recover the cost of this pool in just 7 years, even though we plan to live here until we're old and gray, or at least as long as the pool hangs on. If we can rent our house out for just 3 weeks each year, it'll be almost pure profit that we can put toward paying off the pool. I studied time value of money a little bit in college; the present value of this investment is positive, so therefore we should definitely move ahead with it. My family will think they're in heaven." To generate even more benefit from the pool, Donald is considering a full one-month (4 weeks) rental for the family's home. He realizes there are pros and cons to this scenario but figures it would be worth it to have one more option to discuss when he brings this up with his family. Under this scenario, determine the NPV of the investment. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answer to O decimal places e.g. 125.25. Enter negative amounts using either a negative sign preceding the number e.g. -45.25 or parentheses e.g. (45.25).)

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The Net Present Value NPV is a financial metric used to evaluate investments by discounting all cash inflows and outflows to the present value using a ... View the full answer