You have recently moved to Hanscom AFB MA and need to make a decision between living in base housing or buying a home in the local market. Compare the following costs and benefits on an annual basis. The purchase price of the home is $250,000 and you pay $2,500 in closing costs today. You borrow the money to buy the home at a 5.5 percent annual interest rate which makes your annual house payment $12,000 (paid at the end of each year in years 1-3). Additionally, you pay $4,000/yr in utilities, $4,000/yr in taxes and house insurance, and $2,000 in maintenance and improvement projects (all cost are incurred at the end of each year). You will not incur any of these costs if you live in base housing. The annual benefits from owning the home are your housing allowance of $10,000 and tax savings of $2,000 (received at the end of each year). The opportunity cost of your best alternative investment is 7 percent, so this is your discount rate for calculating present value. You plan to sell the home at the end of the 3rd year for $240,000. The costs you will incur to sell the home at the end of the third year are a 6 percent realtor commission ($15,000), and the $193,000 remaining on the loan.
What is the net cash flow at the end of Year 1?