Suppose That a Property Owner Plans on Spending $15,000 Per

question 21

Multiple Choice

Suppose that a property owner plans on spending $15,000 per year over the next 5 years on maintenance and repairs. However, if she does not spend this amount, she will not be able to keep rents at market levels, vacancies will increase, and the resale value of the property in 5 years will be lower. Assume that she would lose about $7,000 a year in net income and would realize a loss of $85,000 in lower property value at the time of sale if maintenance is not maintained on the property. Determine the difference between the present value of the cost of maintaining the property and the loss to the owner if the property is not maintained assuming that the owner could earn a 7 percent return on any funds not invested in maintenance and repairs?

• A) The present value of the maintenance costs is $27,802 less than the present value of the averted loss
• B) The present value of the maintenance costs is $27,802 greater than the present value of the averted loss
• C) The present value of the maintenance costs is $32,802 less than the present value of the averted loss
• D) The present value of the maintenance costs is $32,802 greater than the present value of the averted loss

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Definitions:

Long-run Changes

Transformations or trends that occur over a significant period, affecting economic structures, demographic patterns, and technological advancements.

Potential GDP

An estimate of the maximum level of economic activity an economy can sustain over a period without leading to inflation.

High Unemployment

High unemployment refers to a condition where a significant portion of the workforce is without jobs, leading to economic and social challenges.

Credible Policy

A policy considered by participants in the economy to be likely implemented and maintained over time, thereby influencing their economic decisions.