Question

Matthew paid $779,000 for a ten-room apartment building nine years ago. The building has lost 2.7% of its value every year. Matthew keeps all of his rooms rented out continually, charging a monthly rent of $810 per room. Upkeep on the building costs Matthew $35,900 every year. If Matthew sells the building, what will his total profit be, to the nearest hundred dollars?
a.
$737,100
b.
$551,700
c.
$362,400
d.
$381,600

Answer 1

Initial cost = $779,000.
Value after 9 years = 779,000*(0.973)^9 ≈ 779,000*0.7816558 ≈ $608,909.88.

Annual rent = 10*(810)(12) = $97,200.
Annual upkeep = $35,900.
Net annual rental income = 97,200 − 35,900 = $61,300.
Total net rental income over 9 years = 61,300*9 = $551,700.

Total profit = sale price + total net rent − initial cost
= 608,909.88 + 551,700 − 779,000 ≈ $381,609.88 ≈ $381,600 (nearest hundred).

Answer: d. $381,600.