1. A real estate developer has just bought an undeveloped parcel of land for $200,000. Although the real estate market is currently slow, he expects that the property will be sold in 2 years. If improvements costing $15,330 are made now and the land is sold in 2 years for $275,000, what is its internal rate of return?

2. A small accounting firm is considering the purchase of a computer software package that would reduce the amount of time needed to prepare tax forms. The software costs $1,500. The firm estimates that it will save $750 per year if the software is used.

a. What is the payback on the computer package?

b. The firm may instead buy a more sophisticated computer package for $3,000. Assuming the same $750 annual savings is relevant, what is the payback on this package?

Answer rating: 100% (QA)

To calculate the internal rate of return IRR we need to find the discount rate that makes the presen... View the full answer