Answer to Problem 11P
27.5% rate of return Bill receives on his investment.
Given information:
In this case, B purchased a vacation lot by making a down payment of $9000 and monthly installment for a period of 40 months which accounts for $500. Since the plot was not as good as assumed by B. Thus he decided to sell the same as a result of which new owner paid $21000 to B against the vacation plot and took over the responsibility to pay for the remaining balance. Therefore, computation of the
Explanation:
In this case, B purchased a vacation lot by making a down payment of $9000 and monthly installment for a period of 40 months which accounts for $500. Since the plot was not as good as assumed by B. Thus he decided to sell the same as a result of which new owner paid $21000 to B against the vacation plot and took over the responsibility to pay for the remaining balance. Therefore, computation of the cash outflow on part of B is shown below:
Thus computation of the
Cash Flow:
IRR =
Conclusion:
27.5% rate of return Bill receives on his investment.
Explanation of Solution
Given information:
In this case, B purchased a vacation lot by making a down payment of $9000 and monthly installment for a period of 40 months which accounts for $500. Since the plot was not as good as assumed by B. Thus he decided to sell the same as a result of which new owner paid $21000 to B against the vacation plot and took over the responsibility to pay for the remaining balance. Therefore, computation of the cash outflow on part of B is shown below.
In this case, B purchased a vacation lot by making a down payment of $9000 and monthly installment for a period of 40 months which accounts for $500. Since the plot was not as good as assumed by B. Thus he decided to sell the same as a result of which new owner paid $21000 to B against the vacation plot and took over the responsibility to pay for the remaining balance. Therefore, computation of the cash outflow on part of B is shown below:
Thus computation of the internal rate of return ascertained by B using the spreadsheet function is shown below:
Cash Flow:
Cash inflow:
IRR =
Conclusion:
27.5% rate of return Bill receives on his investment.
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