Answer:
The answer is the internal rate of return on this investment is 10%.
Explanation:
The internal rate of return is the discount rate bringing the present value of the perpetual stream of cash inflows equal to its initial investment which is $210.
We apply the formula for calculating the present value of growing perpetuity to find out the internal rate of return, which is denoted as X in the below equation:
10.5/ ( X - 5%) = 210 <=> X - 5% = 10.5 / 210 = 5% <=> X = 5% + 5% = 10%.
So, the internal rate of return on this investment is 10%.
