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    Net Present Value

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    Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments:

    a. She purchased a small building for $50,000 and rented space in it. She received rental income of $8,000 for each of the four years and then sold the building this year for $55,000.

    b. She purchased a small refreshment stand near the city park for $25,000. Annual income from the stand was $5,000 for each of the four years. She sold the stand for $20,000 this year.

    c. She purchased an antique car for $5,000 four years ago. She sold it this year to a collector for $7,000.

    Required:
    1. Using the net present value method, determine whether or not each investment earned at least 12%.

    2. Did the investments as a whole earn at least 12%? Explain.

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    https://brainmass.com/business/capital-budgeting/74220

    Solution Preview

    Since the question is asking for 12% return, use a discount rate =12% and see whether NPV is positive for this discount rate. If it is the investment earned 12%, if it is negative then the investment did not earn 12%.

    Julie Kowalis, an investment analyst, wants to know if her investments during the past four years have earned at least a 12% return. Four years ago, she had the following investments:

    a. She purchased a small building for $50,000 and rented space in it. She received rental income of $8,000 for each of the four years and then sold the building this year for $55,000.

    b. She purchased a small refreshment stand near the city park for $25,000. Annual income from the stand was $5,000 for each of the four years. She sold the ...

    Solution Summary

    Uses net present value to determine whether or not each of the three investment earned at least 12% and whether all the investments combined earned 12%.

    $2.19

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