Hello John
-Sudan Co wishes to undertake a project requiring an investment of $732,000 which will
generate equal annual inflows of $146,400 in perpetuity.
If the first inflow from the investment is a year after the initial investment, what is the
IRR of the project?
1. The answer is 20%
2. Please help me with this question. I have no idea how to tackle it. The workings in the revision kit is not that simple to understand.
Thanks
Ask the Tutor ACCA FM
Investment Appraisal
5y ago#1The discount factor for a perpetuity is 1/r
Therefore 146,400 x 1/r = 732,000
So r = 146,400/732,000 = 0.2 or 20%
It will help you to watch the Paper MA lectures on interest and on investment appraisal.
(If the first inflow from the investment is a year after the initial investment) what is mean by this??? Is it an indication of delayed perpetuity???
2y ago#3No, it means that the cash flows from the investment start one year after the initial outlay.
This is not necessarily an indication of a delayed perpetuity.
A delayed perpetuity specifically refers to a perpetuity where the first payment starts after a certain period of delay. In this context, it simply means that the cash inflows begin one year after the initial investment.
Sign into reply to this topic.