You Have Inherited a Run-Down House in Chicago

question 14

Multiple Choice

You have inherited a run-down house in Chicago. There is an active market in properties of this type, and similar properties are selling for $100,000. If rented out, the cash returns are expected to be $12,000 per year forever. If the appropriate discount rate is 15%, how much is the house worth?

• A) $80,000
• B) $100,000
• C) $180,000
• D) None of the above

---

Definitions:

Market Price

The current market value at which transactions for a service or asset are conducted.

Units

Basic measures or quantities considered as a standard in terms of which other quantities can be expressed.

Economic Profit

Profit calculated by subtracting both explicit and implicit costs from total revenues, capturing the true profitability of a venture.

Market Price

The current value at which an asset or service can be bought or sold in a competitive marketplace.