Log in

No account? Create an account
Welcome to the Aurosphere
Tuesday, March 21st, 2006

Date:2006-03-21 14:53
Subject:I ♥ my financial calculator.
Mood: geeky

TurboTax, this year, has a promotional deal where you can convert some of your tax refund into gift cards. They have a $15 shipping-and-handling fee (which is absurd), but you get the cards (or at least, the ones I'm interested in) at a 10% discount relative to their value.

So, I can get $400 in gift cards at a cost of $360 (discounted price) + $15 (shipping) = $375.

For a while I was waffling on whether this was a good idea -- whether the bonus was worth committing to spending the money on some particular thing.

Then, I remembered, hey, I just spent the last ten weeks learning how to evaluate this kind of problem!

Let's say I spend about $10/week at Starbucks. (This is, sadly, a conservative estimate. I go there two to three times a week, sometimes more, and even if I just get a tall drink -- one shot of espresso, instead of the two in the grande -- and skip the pastry, it'll cost upwards of $3, after I toss some change in the tip jar.) So, this is an investment with PV = -375 (present value: cash outflow at time 0), FV = 0 (future value: after the cards are expended, there's no salvage value), PMT = +10 (payment: cash inflow per period), and N = 40 (40 weeks = $400 / $10 per week). Punching in weekly compounding (P/YR = 52, to match the one-week periods defined in N), and the other four variables, I can then hit the I/YR button and find the corresponding interest rate.

The internal rate of return for this investment is about 16.6%. That's somewhat better than my mutual fund portfolio is doing. With a slightly higher estimate of the weekly spending (PMT = $12.5/week, N = 32 weeks) the IRR jumps to over 20%.

So, I'm buying a bunch of Starbucks cards.

13 comments | post a comment

browse days
my journal