From the course: Pre-investing: Before Investing in Real Estate

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Measuring magnitude: Cash multiple

Measuring magnitude: Cash multiple - Microsoft Excel Tutorial

From the course: Pre-investing: Before Investing in Real Estate

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Measuring magnitude: Cash multiple

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- All right, now let's look at a concept called the cash multiple. This is something that is frequently used in combination with the internal rate of return. And it's actually a very, very simple concept. The idea is if you put in one dollar into an investment, how much do you get back for every dollar that you put in? So let's look at an example here where two projects give a two x multiple, okay, cash multiple. Both investments double your money. So do they give you the same return? Now, the two x means, you put a dollar in, you get two dollars back. So you get your original dollar, plus you get a dollar of profit. So that's how you get a two x multiple. And basically, it means doubling your money. So if it was a one x multiple, it means you just got your original investment back, okay? So now we have two projects that both have a 2.0 cash multiple. That means they both double your money. So are the projects the same? Well, if you remember from the internal rate of return and our…

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