Your firm is considering investing in a promising biotechnology startup. The startup is currently valued at $1 million today. Based on your analysis, you believe that the startup has a 10% prob- ability of success in which case it will be worth $40 million in 10 years. However, it has a 90% probability of failure in which case the value of your investment will drop to zero. Assume that the startup produces no intermediate net cash flows.

What is the internal rate of return (IRR) of this investment?

Assume a discount rate of 10%. Using the NPV rule, should your firm invest in the biotechnology startup

Answer rating: 100% (QA)

To calculate the internal rate of return IRR of this investment we need to find the discount rate at ... View the full answer