Fincher Manufacturing (FM) is considering two mutually exclusive capital investments to utilize an idle factory owned by the firm. The first alternative calls for manufacturing tundratorque drill bits required for the extraction of rare earth metals from the frozen tundra of Greenland. This proposal would generate after-tax cash inflows of $12 million per year beginning in one year (at date 1). Due to the current scarcity of rare earth metals, the yearly cash flows for this project are expected to grow by 5 percent per year in perpetuity from date 1 on. The second alternative calls for producing the Polycrystalline Diamond Compact bits frequently used in horizontal drilling operations. Alternative two will generate constant yearly after-tax cash flows of $20 million beginning in one year (at date 1) and remaining constant in perpetuity. Assuming each project requires an initial investment of $120 million: a. Which capital investment project has the greater IRR?

b. Which project has a greater NPV if Finchers cost of capital is 10 percent.

c. Determine the range of estimates for Finchers cost of capital for which investing in the project having the greater IRR maximizes the value of the firm.