You are considering a project that requires an immediate investment of $10 million (t=0), and which generates cash flows that start in three years, i.e., at the end of t=3. The cash flow at the end of t=3 is $2 million, which is expected to grow forever at 3%. You face some uncertainty over the discount rate, and so plan to approach this problem using both the net present value (NPV) and internal rate of return (IRR) approaches.

Question: Suppose that you are unsure about 12% being an accurate measure of your cost of capital (i.e., investors may view the project as more or less risky, and thus may demand more or less than 12%). Faced with this uncertainty, you decide to calculate the internal rate of return. What is the IRR of this project, assuming the same cash flows above and growth rate?