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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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