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The following investment return will result in what dollar weighted return? An initial outlay of $50,000, with three years of additional outflows of $10,000 each, and inflows as follows: $0 the first year, $20,000 in years 2 and 3, and sale of the property at the end of year 3 for $75,000.
CF0 = <50,000>CF1 = 0 - 10,000 = <10,000>CF2 = 20,000 - 10,000 = 10,000CF3 = 20,000 - 10,000 + 75,000 = 85,000IRR = 18.32%

Respuesta :

The dollar-weighted return is 2.390154, or 239.0154%.

The dollar-weighted return is calculated by taking the present value of all cash flows, including the initial outlay, and dividing by the initial outlay. The present value of all cash flows is calculated as follows:

CF0 = <50,000>

CF1 = 0 - 10,000 = <10,000>

CF2 = 20,000 - 10,000 = 10,000

CF3 = 20,000 - 10,000 + 75,000 = 85,000

The present value of all cash flows is calculated as:

50,000 + (10,000 / (1 + IRR)^1) + (10,000 / (1 + IRR)^2) + (85,000 / (1 + IRR)^3) = 119,507.72

The dollar-weighted return is calculated by dividing the present value of all cash flows by the initial outlay of $50,000:

119,507.72/50,000 = 2.390154

Therefore, the dollar-weighted return is 2.390154, or 239.0154%.

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