A stock has D0 = $2, and you forecast a constant growth rate of 10%. With a current market price of $30 per share, the IRR is

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IRR is the discount rate that makes the NPV of a project equal to zero. In this case, the NPV is the present value of the future dividends minus the current market price. The present value of the future dividends is:PV = D0 / (r - g)where:D0 is the current dividendr is the discount rateg is the growth rateSubstituting the given values, we get:PV = $2 / (r - 0.10)The current market price is $30, so the NPV is:NPV = PV - $30 = $2 / (r - 0.10) - $30Setting NPV equal to zero and solving for r, we get:$2 / (r - 0.10) - $30 = 0r - 0.10 = $2 / $30r = 0.173Therefore, the IRR is 17.3%.

A Stock Has D0 = $2, and You Forecast a Constant