An investment is expected to produce the following annual year-end cash flows: year 1: $5,000 year 4:

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An investment is expected to produce the following annual year-end cash flows:

year 1: $5,000 year 4: $5,000
year 2: $1,000 year 5: $6,000
year 3: $0 year 6: $863.65

The investment will cost $13,000 today.

a. Will this investment be profitable?

b. What will be the IRR (compounded annually) on this investment?

c. Prove your answer in (b) by showing how much of each year’s cash flow is recovery of the $13,000 investment and how much of the cash flow is return on investment.

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Real Estate Finance and Investments

ISBN: 978-0073377339

14th edition

Authors: William Brueggeman, Jeffrey Fisher

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Question Posted: Nov 08, 2018 01:23 PM

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An investment is expected to produce the following annual year-end cash flows: year 1: $5,000 year 4:

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Goa1 To show the relationship between IRRs compound interest recovery of capital and cash flows a Th...View the full answer

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