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What is the value of each option

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Question - You inherited a house in San Diego from a rich uncle. You need money now, so you are considering three options:

Option A: sell the house for $310,000

Option B: spend $75,000 on improving the house, after that sell it for $380,000.

Option C: burn the house for insurance money. The house is insured for $219,000.

Not selling the house is not a viable option.

If you sell the house (options A and B), you will have to pay realtor's fees and taxes, which amount to6% of the selling price. (For example, if you sold the house for $100,000, the total cost of fees and taxes will be $100,000*0.06=$6,000).

If you burn the house, you'll have to hire a good lawyer to prove it was an accident. The lawyer will cost you $21,000(you do not have to pay realtor's fees and taxes in this case).

Required:

a) What is the value of each option?

b) Which option should you choose?

c) What is the opportunity cost of options A and B?

Reference no: EM132044988

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