201
QuizMultiple Choice

Home Ownership — Cumulative exam

Question 201 • Financial Math - MA2007

Wayne is planning to sell the twenty-room apartment building he bought fifteen years ago, for which he paid $759,000. The real estate market in his area has been falling since that time, and the property has decreased in value by 3.8% every year. Wayne rents each of his apartments for $495 per month, and upkeep on the building costs him $26,400 annually. Assuming that Wayne has kept his apartment complex constantly three-quarters full, what will his net profit or loss be when he sells the building, to the nearest hundred dollars?

Answer
A
$61,500 loss
B
$722,400 loss
C
$168,000 profit
D
$606,000 profit

Explanation

Wayne rents 15 apartments on average because three-quarters of 20 is 15. His annual rent is 15 × $495 × 12 = $89,100, so after $26,400 in upkeep, he earns $62,700 per year, or $940,500 over 15 years. After 15 annual decreases of 3.8%, the building is worth about $424,300; that is a loss of about $334,700 compared with its $759,000 purchase price. Combining that loss with the rental income gives a net profit of about $605,800, which rounds to $606,000: choice D, $606,000 profit.

AI-written and checked against the verified answer.

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