Question
Please explain basics of solving equations for IRR. Question: You have the opportunity to buy a piece of land for $10,000. You are sure that
Please explain basics of solving equations for IRR.
Question:
You have the opportunity to buy a piece of land for $10,000. You are sure that five years from now it will be worth $20,000. If you can earn eight per cent per year by investing your money in the bank is this investment in land worthwhile? Answer this question by calculating the internal rate of return of the investment.
Answer: Solving for the internal rate of return
20,000 /(1+ i)5 = 10,000 20,000 = 10,000(1+i)^5 20000/10,000 = (1+i)^5 (2)^1/5 1 = I
I will appreciate if you explain how to solve this equation, because although I have the answer I cannot understand how it was done.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started