You own a house that you acquired four years ago. The maintenance expenses on th

Question

You own a house that you acquired four years ago. The maintenance expenses on the house average $200 a month. The house cost $219,000 when you purchased it. A recent appraisal on the house valued it at $239,000. If you sell the house you will incur $18,000 in real estate fees. The annual property taxes are $4,000. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office? Please show all work - Thanks!

Answer

$211,800

$221,000

$225,000

$235,000

$239,000

Explanation / Answer

if we are using this as an office space then we are forgoing the opportunity of selling the house

we should take into account the current value of the house - real estate costs (as all other costs incurred are sunk costs and should not be considered)

so value of option = current value - real estate cost = 239000 - 18000 = 221000

answer is B

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thanks in advance :)

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