A multinational engineering consulting firm that wants to provide resort accommo

Question

A multinational engineering consulting firm that wants to provide resort accommodations to certain clients is considering the purchase of a three-bedroom lodge in upper Montana that will cost $250,000. The property in that area is rapidly appreciating in value because people anxious to get away from urban developments are bidding up the prices. If the company spends an average of $500 per month for utilities and the investment increases at a rate of 2% per month, how long would it be before the company could sell the property for $100,000 more than it has invested in it?

Explanation / Answer

Let us assume he sells after n months. In that period he has incurred a total expenditure of:

Expense = 250000+ 500n

Since the property rates are increasing@ 2% per month, the property rate after n months is:

250000(1.02)^n.

In this problem: 250000 (1.02)^n -250000-500n = 100000

So, n = 18.3 months ~ 18 months

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