3. Choose the investment alternative with the fastest payback. We could ask how long it would take for our $10,000 investment to grow to $20,000 if we invested in the bank at 8% per year. TO answer this question we are solving the equation for the number of periods, n:
$10,000 = $20,000/1.08n
On the financial calculator we input PV, FV, and i and compute n. We find that n is nine years. Because it takes only five years to double your money with the investment in land, clearly the land investment is better than putting your money in the bank. Note that using the Rule of 72 to find n we get:
Doubling Time = 72/8 = 9 Years
Excel and Word documents attached show how to find the best investment alternative this way.