Final answer:
The project's Internal Rate of Return (IRR) is 10%, calculated by the formula for the present value of a perpetuity, which in this case equals the upfront cost of $100,000 divided by the annual revenue of $10,000.
Step-by-step explanation:
The Internal Rate of Return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. In this scenario, the cost of the project is $100,000 payable upfront, and it produces revenues of $10,000 per year indefinitely. This is a case of a perpetuity, where annual cash inflows remain the same forever.
The formula to calculate the present value of a perpetuity is given by PV = C / r, where PV is the present value, C is the annual cash inflow, and r is the rate of return or discount rate. In this case, we seek to find the rate 'r' that will make the present value of $10,000 inflows equal to the upfront cost of $100,000.
Thus, we set up the equation $100,000 = $10,000 / r and solve for 'r'. This gives us an IRR of 0.10 or 10%. This means the project's IRR is 10%, which is the break-even rate of return for the given perpetual cash flows.