SLInvest Examples
Example 1.
Suppose the investor buys a bond that costs $1000 with quarterly discount payments of $25 and sells this bond for $950 in two years. Let us fill out the table with the investment data:
Thus, the internal rate of return for the project is - 4,05729% for each period (quarter in our case). NPV and NPV are $119,20 and $152,58 respectively (the quarterly discount rate of 2,5% was used for calculations).
Example 2.
Suppose, two investors participate in a joint project. The first investor invests $120000 within a year paying $10000 each month, while the second investor invests $120000 within 6 months paying $20000 each month. After the project is over, both investors get the income of $300000:
Thus, the investors should divide the earnings of $300000 not in halves, but according to the ratio of their NPV because, despite the equal absolute amounts of investments, the money of the first investor "worked" more in the project and so they should bring more income.
In order to calculate the income of each investor, you should either divide $300000 according to the ratio of their NPV or calculate their NFV for the 12th period using the internal rate of return as the discount rate of the project. To do it, click the "Get from IRR" button and delete the last period in the project (by clicking the "Delete" button). The "NFV" row of the table will show you the investors' calculated income: $160232,13 and $139767,87 respectively.
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