Use your time T NPV from part (b) along with the OCC from part (c) to estimate the expected IRR, r, of the construction phase investment. Interpret your Answer; what does this number represent?
The expected IRR, r, of the construction phase investment is estimated to be 17.34%. This estimate is based on the formula r = (VTKT)/[(1+r)T 1], where VT is the terminal value of the cash flows, KT is the initial investment, and T is the number of years. The expected IRR represents the annualized rate of return that the investor can expect to earn on the construction phase investment.