Project M requires an initial investment of $25 million.The project is expected to generate $2.25 million in after-tax cash flow each year forever.Calculate the IRR for the project.

Question

Quizplus · Accepted Answer

To calculate the IRR, we need to find the rate at which the present value of future cash flows equals the initial investment.
PV of perpetuity = Cash flow / Discount rate
$2.25 million / Discount rate = $25 million
Discount rate = $2.25 million / $25 million = 9%
Therefore, the IRR for the project is 9%. Choice B is the correct answer.

Project M Requires an Initial Investment of $25 Million