Question

Suppose you quit your job as an accountant earning an annual salary of $50,000 to buy foreclosed homes, fix them up, and then resell them. You have $200,000 of your own money to invest in this, half of which you use to purchase three homes for a combined $500,000 (borrowing the remaining $400,000), and spend the remaining $100,000 of your money on materials. Over the course of one year you fix up all three homes and resell them for a total of $700,000. Assume that your loan to purchase the homes is payable in one lump sum at the end of one year.If you can borrow and lend money at a 6% annual rate of interest, what was your total cost of renovating these three homes?

Answer 1

$692,000

Step-by-step explanation:

The computation of cost of renovating is shown below:-

Cost of renovating = Salary dropped + Owned money + Borrow money + Total interest

= $50,000 + $200,000 + $400,000 + ($700,000 × 6%)

= $50,000 + $200,000 + $400,000 + $42,000

= $692,000

Therefore for computing the cost of renovating we simply applied the above formula.