Rate of Return Answers

1.   

Find i to make the NPW equal to 0. NPW = 2500 + 100(P/A, i, 10) + 50(P/G, i, 10)
 
Search to find the 0 crossing.
i = 0: NPW = 750
i = 0.1: NPW = –740.95
i = 0.8: NPW = –530.1
i = 0.4: NPW = 5.150 i is about 4%
 

2. Find the interest rate that makes the NAW equal to 0.

NAW = 11000(P/A, i, 5) 500(A/G, i, 5) 3000 + 7000

i = 0: NAW = 2200 - 800 + 4000 = 1000

i = 12%: NAW = 62

i = 15%: NAW = 142 Interpolating: i = 13%

 

 

 

3.

The cash flow associated with these assumptions is shown below.

 

The NPW is
NPW = 10000(P/A, i, 4) + [5000(P/A, i, 20) + 500(P/G, i, 20)](P/F, i, 4)
By trial and error the ROR is about 15 or 15%.

 

4.

a. 20000(P/F, i, 4) = 10000
(P/F, i, 4) = 2
i = 19%
 
b. -8000 + 600(P/A, i, 4) + 10000(P/F, i, 4)
By trial and error return is between 12 and 13%.

c. The investment yields exactly the MARR.

5.

a. The rate of return is 0% since the saving are exactly equal to the investment.

b. The rate of return is 20%, 200/1000 since the entire investment is returned after the five year period.

c. The rate of return is 20%, 200/1000 since the income stream is never ending.

d. The rate of return is 0% because the total return is exactly equal to the investment.