What would be the rate of return (IRR) on a project that had an initial cost of $100,000 today and $200,000 in 5 years from today BUT returns $50,000 at the end of the year for 10 years. Further, there would be a one-time payment received (income) of $70,000 at the end of the 10th year.

What would be the rate of return (IRR) on a project that had an initial cost of $100,000 today and $200,000 in 5 years from today BUT returns $50,000 at the end of the year for 10 years. Further, there would be a one-time payment received (income) of $70,000 at the end of the 10th year.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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