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Suppose the project requires initial investment of $10000 and expects to receive annual end-of-year perpetual payments....

Suppose the project requires initial investment of $10000 and expects to receive annual end-of-year perpetual payments. The first payment is estimated to be $872 and we expect the payment to grow at a constant rate of 2.4 percent annually. Find the IRR of this project. Enter your final answer as a percentage without "%" (e.g., enter 6.56% as 6.56). Keep two decimal places.

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Answer #1

IRR is the rate at which NPV is zero

value of future cash flows = Cashflow1/(rate of return - growth rate)

NPV = -initial investment + Present value of future cash flows

= 10000 + 872/(IRR - 2.4%)

=>

IRR = 872/10000 + 2.4%

= 8.93%

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