Jessica has just graduated with her MBA. Rather than take the job she was offered at a prestigious investment bank- Baker, Bellingham, and Botts– she has decided to go into business for herself. She believes that her business will require an initial investment of $1 million. After that, it will generate a cash flow of $100,000 at the end of one year, and this amount will grow by 4% per year thereafter. What is the IRR of this investment opportunity?

Scotia Capital was so impressed with Jessica that it has decided to fund her business. In return for providing the initial capital of $1 million, Jessica has agreed to pay them $125,000 at the end of each year for the next 30 years. What is the internal rate of return on Scotia Capital’s investment in Jessica’s company, assuming she fulfills her commitment?

Answer rating: 100% (QA)

To calculate the Internal Rate of Return IRR of an investment opportunity we need to find the discou... View the full answer