Question
ii. You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,900
ii. You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,900 and will be posted for one year. You expect that it will generate additional revenue of $1,062 a month. What is the payback period? (one decimal)
iii. You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.8 million Investment A will generate $ 1.93 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $ 1.4 million at the end of the first year, and its revenues will grow at 2.9 % per year for every year after that.
a. Which investment has the higher IRR ? (two decimal)
b. Which investment has the higher NPV when the cost of capital is 7.8 %?
c. In this case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity?
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