Question

A real estate investor likes to “flip” houses. That is, he likes to buy a house at a low price and then “flip” or sell the house for a higher price. The investor is looking at a foreclosed house that will cost $242,779.00 today. He will invest an additional $41,563.00 in the first year of owning the house to upgrade its features. He then believes he can sell the house for $405,977.00 at the end of the second year.

What is the NPV of this investment if our investor wants to earn a 19.00% annual return on the house?

Answer format: Currency: Round to: 2 decimal places.

Read questions carefully, I will only thumbs up the correct answer.

Answer 1

Calculation of Net present value:
Time	Cashflow	PVF @19%	PV
-	-2,42,779	1.00	-2,42,779.00
1.00	-41,563	0.840	-34,926.89
2.00	4,05,977	0.706	2,86,686.67
			8,980.78
Net present value is $8980.78