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    GailKT's Avatar
    GailKT Posts: 7, Reputation: 1
    New Member

    Jun 1, 2007, 07:25 AM
    Net Present Value and Internal Rate of Return Method
    I want to know if an investment during the past four years have earned at least a 12% return.

    a) A small building was purchased for $50,000.00. Received rental income of $8,000.00 for each of the four years and sold the building this year for $55,000.00.

    Using the net present value method, determine whether this investment earned at least 12%.
    omsailogistic's Avatar
    omsailogistic Posts: 39, Reputation: -1
    Junior Member

    Jun 3, 2007, 11:31 AM
    $50000 * (1+.12) raise to power 5 = $ 55000

    (1.12) raise to power 5 = $55000 / $ 50000
    (1.12) raise to power 5 = 1.1

    Now find the future value table and see 12% rate at 5 year if the value is 1.1 then the investment has earned the desired 12% rate of return otherwise not.

    I do not have any future value table right now...

    and if you want to know what is the desired rate of rate on the investment if it is not 12 % see the 5th year all over the returns and the return which is close to 1.1 shall be the desired return

    Hope u may find it helpful...

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