The IRR on this investment is 18.52%. To actually obtain that return, you would have to "reinvest" the cash flows at the same rate. To decide whether to invest, you need to determine your required rate of return, taking into account many factors, especially default risk. An IRR this high is likely to indicate great risk.

So if you look at this as follows, the payments in years 4-9 are all interest on the original loan, the question you ask yourself is would you loan someone $2.7M for a total payments of $4.65 M. Do a IRR on this investment it is a great return

Hi. I need help trying to figure out if this is a good investment, but I'm not sure which formulas to apply.

The information I am given:

The investor is willing to give $2.7 and will pay be paid back in full at the end of 3 years (NO interest will be charged). At the end of the first year they will be paid $1,000,000, at the end of year 2 $1,000,000, then at the end of year 3 the remaining $700,000 will be paid.

Then for the next 5 years he/she will be given yearly payments of $390,000.

Now with this information, how would I know if this is or is not a good investment and the return that would be received? I tried calculating NPV but I do not know what to use as a discount rate? I arrived at an NPV of $558,283 and PV of expected cashflows to be $3,258,283 but I don't really know what these mean.

In short, how much can the investor expect to make from this scenario? And how do we know which formulas to use?