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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
The 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???
No, 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.
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