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Consider the following six real estate projects, each of which involve an initial investment and then an expected selling price after three years: Project Discount
| Consider the following six real estate projects, each of which involve an initial investment and then an expected selling price after three years: | |||||||
| Project | Discount Rate | Cost Today | Expected Year 3 Sale Price | ||||
| Kortright | 10% | $1,000,000 | $1,600,000 | ||||
| Stone | 10% | $3,000,000 | $5,000,000 | ||||
| Elmira | 7% | $4,000,000 | $6,000,000 | ||||
| Gordon | 7% | $5,000,000 | $7,000,000 | ||||
| Victoria | 5% | $6,000,000 | $9,000,000 | ||||
| Speedvale | 5% | $7,000,000 | $10,000,000 | ||||
| A. What is the IRR of each investment? What is the NPV of each investment? | |||||||
| B. Suppose you have $9M to invest. Which projects would you choose? | |||||||
| C. What if you instead had $13M to invest? | |||||||
| D. What is wrong with using the IRR to prioritize projects in this context? |
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Asset Allocation From Theory To Practice And Beyond
Authors: Mark P. Kritzman, William Kinlaw, David Turkington, Harry M. Markowitz
1st Edition
1119817714, 978-1119817710
