Katie, 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 the 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.
what I did for this part was this:
Dis Rate high/true high/low
High factor 18 1.5656 1.5656
Low 20 1.5278
IRR= .18 +(.02 x .0031/.0378)=.1816 or 18.16
b) She purchased a small refreshment stand near the city park for $25,000. Annual income from the stand for 4 years was $5,000 per year. She sold the stand for $20,000 this year.
what I did here was took the 25,000/20,000=1.25 I went to the annuity chart but the numbers skip from .9901 to 1.5278 it doesnt go down to factor 1.25?
Then c) She purchased an antique car for $5,000 four years ago. She sold it this year to a collector for $7,000
Since they didnt give numbers for each of the years I used this formula
initial cost x discount factor= present value
5000 x D=7000
D=1.4 I went to the chart and these must be off because closest is 1.5
Using the net present value method determine if each investment earned 12%
You will find the answer to this puzzling question inside...