Question

Yvette buys and sells real estate. Two weeks ago, she paid $300,000 for a house on Pine Street, intending to spend $50,000 on repairs and then sell the house for $400,000. Last week, the city government announced a plan to build a new landfill on Pine Street just down the street from the house Yvette purchased. As a result of the city’s announced plan, Yvette is weighing two alternatives: She can go ahead with the $50,000 in repairs and then sell the house for $290,000, or she can forgo the repairs and sell the house as it is for $250,000. She should:

Answer 1

She should forgo the repairs.

Step-by-step explanation:

If she does the repair, the total costs would be:

$300,000+$50,000 = $350,000

And the loss would be:

$290,000 -$350,000 = -$60,000

If she doesn't do the repair, the total costs would be:

$300,000

And the loss would be:

$250,000 -$300,000 = -$50,000

So, if she doesn't do the repairs she minimizes the loss