C
Cut-Throat
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I'll have to hop on down to the store quick like a bunny and try some out.
How does it go with carrots?
This example was in Tobias' book "the only investment guide you'll ever need." Tobias only gave you a 10% discount on the wine, which leads to a 177% rate of return.
A 20% discount leads gives you a 813% annualized rate of return. It's tough to get this without a financial calculator or using the IRR function in Excel. Once the answer is given it's pretty easy to see that the weekly return on investment is 4.344%, and taking the 52 power gives you 813%.
This does not depend on the rate you can return on your other investments. Obviously, as salaryguru assumes, you're not going to make 800% on most of your investments, so you'll really only end the year $100 ahead or so.
The result does depend on the return on investment. To come up with an annual rate of return, I simply took the approximate $100 you end up ahead with the discount initial buy case and divide it by the starting $416 nest egg.
This is not an annual rate of return. This is called ROI, which is independent of the timeframe. The annual rate of return would be much higher because you get some of your "return" earlier than at the end of the year. I suggest reading up on XIRR in Excel if you're interested.
malakito.
IRR has some limitations, and NPV (esentially what you described) is usually better. In your analysis, though, you need to stick to the dollar figure, and not the percentage. The way that the IRR would be useful in this example (and the percentage you got would be misleading) is if you are trying to make a decision like, "should I buy this case of wine instead of investing in a 5% CD," or "will I come out ahead if I buy the case of wine and carry the balance on my credit card at 20%." Unless your alternative returns over 800% you should "invest" in the wine.
The bigger question is How long does beer last before it goes skunky?
Good point. At a bottle a day the return is 4.344% a day, or an annualized 551 million percent.