Net Present Value and Internal Rate of Return Methods?

Question

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.

1. 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.

Answer 1

Plainly the answer is 'yes' ...

She received 16% per year in RENT .. so long as RPI DISCOUNT RATE is less than 4%, she is achieveing a real return of more than 12%.

Answer 2

The internal rate of return is the discount rate that sums the cashflows to zero. Simply discount your individual cashflows at 12% (raised to an appropriate power) and see what you get.