CHAPTER 6 Understanding Rates of Return
Chapter Opening Story – What is worth of getting a college degree? • Education beyond High School – College Degree: 14.5% return on investment – Post graduate degree: 6.5% return on investment Source: The Age , January 29, 2003
In 1970, when Wal-Mart Stores, Inc. went public, an investment of 100 shares cost $1,650. That investment would have been worth $12,283,904 on January 31, 2002. What is the rate of return on that investment? Example: Meaning of Rate of Return
Solution: 0 32 $12,283,904 $1,650 Given : P = $1,650 F = $12,283,904 N = 32 Find i : $12,283,904 = $1,650 (1 + i ) 32 i = 32.13% N i P F ) 1 ( Rate of Return
Suppose that you invested that amount ($1,650) in a savings account at 6% per year. Then, you could have only $10,648 on January, 2002.What is the meaning of this 6% interest here?This is your opportunity cost if putting money in savings account was the best you can do at that time!
(MARR)•the minimum rate of return belowwhich a company would not be interested in the proposed investment alternative. •MARR depends on a number of factors such as conditions of the market, level of competition and cost of capital. •MARR values varyacross different companiesand even within the same company•a company working for construction of buildings, bridges, and tunnels. the MARR may be the lowest for the building business and largest in tunnels, on account of highest competition in the building sector
Why ROR measure is so popular?•This project will bring in a 15% rate of return oninvestment.
- Summer '16
- jemal salih
- Net Present Value, Internal rate of return, MARR