Unifying Concepts: Net Present Value and IRR

Unifying Concepts: Net Present Value and Internal Rate of Return Methods

Julie Kowalis, an investment analyst, wants to know if her investments during the past four
years have earned at least a 12% return. Four years ago, she had the following investments:

a. She purchased a small building for $50,000 and rented space in it. She received rental income of $8,000 for each of the four years and then sold the building this year for $55,000.
b. She purchased a small refreshment stand near the city park for $25,000. Annual income
from the stand was $5,000 for each of the four years. She sold the stand for $20,000 this
year.
c. She purchased an antique car for $5,000 four years ago. She sold it this year to a collector
for $7,000.

Required:
1. Using the net present value method, determine whether or not each investment earned at
least 12%.
2. Did the investments as a whole earn at least 12%? Explain.

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