Purchase Solution

Net Present Value and Internal Rate of Return

Not what you're looking for?

Ask Custom Question

Unifying Concepts: Net Present Value and Internal Rate of Return Methods

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.

Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to determine whether or not each investment earned at least 12% and answer did the investments as a whole earn at least 12%.

Solution Preview

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

Find NPV by finding the present value of each cash flow, including both inflows and outflows, discounted at the project's cost of capital.
We will consider the payment and additional expenses as cash outflow while the cash receipt and saving will be regarded as cash inflow.

NPV = sum of CFt where CF is the cash flow
(1 + k)t k is the ...

Purchase this Solution


Free BrainMass Quizzes
IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.