There is a project. We have some cashflows. We know how long it takes. We can find an IRR for this project. This project has some performance incentives involved. If the IRR > X, one group gets a bonus payment. The bonus payment is going to be 10% of profit above X (the hurdle rate).

Option 1: Discount the project cashflows by the hurdle rate to find what the cashflows would be if the IRR was exactly the hurdle rate. Then subtract the "Hurdle Cashflows" from the actual "Project Cashflows". (The difference between these is equivalent to the percentage difference in IRR over the hurdle rate, but expressed in dollar figures). Sum the differences (for every period) to get your excess profit above the hurdle rate, multiply by 10%, and there's your bonus payment.

Option 2: Manipulate the last set of cashflows (the sale of the project in the last month/year) in order to make the project IRR equal the hurdle rate. The amount that you decrease the last set of cashflows to match the hurdle IRR is your excess profit. Multiply by 10%, and there's your bonus payment.

Which option are you going with and explain why. More detail the better.