Problem: Paul is tired of sitting in the freezing Minnesota winter and is considering insulating his home. It would cost him $5000 this year to insulate, and the estimated reduction in his yearly fuel costs would be $350 per year. The insulation can be installed immediately. Assume the discount rate is 7%. Paul plans to live in the house until he retires, 23 years from today, at which point he will sell the house and move to someplace warmer. He has already consulted a real estate agent for advice and was told that insulation will not add anything at all to the value of the house when it is sold.

Required:

(a) Calculate the present value of net benets of insulation assuming that the benets are realized at the end of each year.

(b) Calculate the present value of net benets of insulation assuming that the benets are realized at the beginning of each year.

Suppose the real estate agent is wrong, and that insulation does, after all, add to the value of a house when it is sold, adding then the present discounted value of the reduction in fuel costs over all later times (that is, forever). The price of Paul's house will be $600,000 in 23 years from today (without insulation).

(c) pts) Calculate what the house will be worth 23 years from today with insulation. Assume the benets are realized at the end of each year.

(d) What is the net present value of insulating the house today, allowing for both the reduction in costs and increased value of the house when sold? Assume the benets are realized at the end of each year