Question

Purple Rain Company is developing a new technology that has the potential of forever changing the way that vegetables are grown. The initial costs associated with its manufacturing facility plant and other associated costs will be $3.1 million (at the present time).

The project is expected to generate only one cash flow of $8.1 million. Given the complexity of the project, the cash inflow will not be received until 10 years from now.  

Calculate the internal rate of return on the investment.
%

Place your answer in PERCENTAGE form using at least two decimal places of accuracy and without the percentage sign. For example, if your intended answer is two point seven two, then place your answer as 2.72 AND NOT AS .0272.

Answer 1

Internal rate of return = (Future value / initial investment)^1/n - 1

Internal rate of return = (8,100,000 / 3,100,000)^1/10 - 1

Internal rate of return = (2.612903)^1/10 - 1

Internal rate of return = 1.1008 - 1

Internal rate of return = 0.1008 or 10.08