Good sir, I've subscribed to this channel when I saw the first video, this is one of the best channel, I'll be using it and share videos from this channel.
Good question, but no, the $5000 can only move through time at the unknown interest rate. It may take a while to understand the logic behind this method, but it is correct. FYI, some books refer to ERR as MIRR (Modified IRR). I encourage you to explore some of my other videos on this topic. Hope this helps!
What if you had multiple payments going out instead of just one? Can those payments be collapsed down into one big payment so that the problem is solveable without trial and error? Ex: With a MARR of 25%, You get $1000 at time t=0. You pay $2500 at t=1. You pay $2500 at t=2. You get $6000 at t=3. If you notice, there's no way to solve for i* now because you wind up with: 1000(F/P, 25%, 3) + 6000 = 2500(F/P, i*, 2) + 2500(F/P, i*, 1) 7953.10 = 2500(F/P, i*, 2) + 2500(F/P, i*, 1) (Now I'm stumped.)
Excellent question. As the problem gets more complicated you will almost always need to resort to a numerical method or trial-and-error to solve for i*. Sorry to say! This particular video is a special-case that is 'solvable' for i*. I suggest you play around with MS Excel -Data/What-if-Analysis/Goal Seek... this is a great under-used feature of Excel that you can probably even find other uses for (in other courses!). Keep watching, and keep the good questions coming!!
The 1.5625 comes from a Table or a Formula for the so-called compound-interest-factor for (F/P, 25%, 2). This notation means: "the Future value given a Present value at a compound interest rate of 25% for 2 periods". The formula is (1+i)^N, which in this case is (1.25)^2 = 1.5625. Hope that helps. Please explore my Channel for more videos that explain all of the different compound interest factors.
I will at the term 'MIRR' - Modified IRR to the description for this video! You are correct to point out that this is another term used in finance to mean the same thing as ERR - thank you!
6:02 you said 500, you meant 5000.
You are absolutely correct! I will pin this comment to the top for others. Thank you.
Amazing teaching, professor! Better than that of my university! Thank you.
Thank you for the wonderful comment. I'm glad you liked it!
Good sir, I've subscribed to this channel when I saw the first video, this is one of the best channel, I'll be using it and share videos from this channel.
Thank you. I'm glad you like the Channel!
so helpful, thank you
You're welcome!
Shouldn't the $5000 cost be discounted first to year 0 at MARR before moving the cost forward again at a rate of i*? Thanks in advance
Good question, but no, the $5000 can only move through time at the unknown interest rate. It may take a while to understand the logic behind this method, but it is correct. FYI, some books refer to ERR as MIRR (Modified IRR). I encourage you to explore some of my other videos on this topic. Hope this helps!
What if you had multiple payments going out instead of just one? Can those payments be collapsed down into one big payment so that the problem is solveable without trial and error?
Ex: With a MARR of 25%,
You get $1000 at time t=0.
You pay $2500 at t=1.
You pay $2500 at t=2.
You get $6000 at t=3.
If you notice, there's no way to solve for i* now because you wind up with:
1000(F/P, 25%, 3) + 6000 = 2500(F/P, i*, 2) + 2500(F/P, i*, 1)
7953.10 = 2500(F/P, i*, 2) + 2500(F/P, i*, 1)
(Now I'm stumped.)
Excellent question. As the problem gets more complicated you will almost always need to resort to a numerical method or trial-and-error to solve for i*. Sorry to say! This particular video is a special-case that is 'solvable' for i*. I suggest you play around with MS Excel -Data/What-if-Analysis/Goal Seek... this is a great under-used feature of Excel that you can probably even find other uses for (in other courses!). Keep watching, and keep the good questions coming!!
omg I wish I knew about you earlier!!!
Me too! Thanks for watching! Good luck on your exam!
How did you get the 1.5625?
The 1.5625 comes from a Table or a Formula for the so-called compound-interest-factor for (F/P, 25%, 2). This notation means: "the Future value given a Present value at a compound interest rate of 25% for 2 periods". The formula is (1+i)^N, which in this case is (1.25)^2 = 1.5625. Hope that helps. Please explore my Channel for more videos that explain all of the different compound interest factors.
@@EngineeringEconomicsGuy Thank you very much! Will do.
My pleasure! Good Luck!
thank u
You're welcome!
thank u so much ily
You're welcome!
MIRR
I will at the term 'MIRR' - Modified IRR to the description for this video! You are correct to point out that this is another term used in finance to mean the same thing as ERR - thank you!
I will *add the term...
thank you
You're welcome!