Answer:
D. She should replace the carpeting but not the roof.
Explanation:
Consider the following steps;
Step 1: Determine net value if she replaces the carpeting alone
Net value=Initial value+added value-carpeting cost
where;
Initial value=unknown, assume to be 0
added value=$7,000
carpeting cost=$6,000
replacing;
Net value=0+7,000-6,000=$1,000
Step 2: Determine net value if she replaces the roof
Net value=Initial value+added value-roof replacement cost
where;
initial value=assumed to be 0
added value=$10,000
roof replacement cost=$12,000
replacing;
Net value=0+10,000-12,000=-$2,000
Roof replacement will reduce the house value by -$2,000
Step 3: Determine net value if she decides to do both
Net value=net value for carpeting+net value for roofing
where;
net value for carpeting=$1,000
net value for roofing=-$2,000
replacing;
Net value=1,000+(-2,000)=-$1,000
If she decides to consider the two upgrade the house value will reduce by -$1,000
Step 4: Take the choice with the best value
The most valuable option would be to consider replacing the carpeting alone. By doing this, the value of the house rises by $1,000
