Investment decision. Report the net present value and internal rate of return of the following two mutually-excluding investments by a company. Which investment provides the most benefit to the company's shareholders? Investment A requires an initial investment of $10 million and three years of additional capital contributions of $5 million. In year 4, investment A is projected to generate cash flows of $3 million per year. Cash flows are projected to continue for another 15 years (16 years total, ending in year 19), growing at 4% per year. A fair return, given the risk of investment A, is 9% per year. Investment B requires an initial investment of $28 million. In year 1, investment B is projected to generate cash flows of $4 million per year. Cash flows are project to continue for another 11 years (12 years total, ending in year 12), growing at 2% per year. A fair return, given the risk of investment B, is 11% per year. Answer A B D E F G H 1 J NPVA IRRA $0 m to $1 m 10% to 11% $0 m to $1 m 9% to 10% $0 m to $1 m 10% to 11% $1 m to $2 m 9% to 10% $1 m to $2 m 10% to 11% $0 m to $1 m 10% to 11% $0 m to $1 m 9% to 10% $0 m to $1 m 10% to 11% $1 m to $2 m 9% to 10% $1 m to $2 m 10% to 11% NPV B -$1 m to $0 m -$1 m to $0 m -$1 m to $0 m $0 m to $1 m $0 m to $1 m -$1 m to $0 m -$1 m to $0 m $1 m to $0 m $0 m to $1 m $0 m to $1 m IRR B 12% to 13% 11% to 12% 12% to 13% 11% to 12% 12% to 13% 12% to 13% 11% to 12% 12% to 13% 11% to 12% 12% to 13% Better inv. A A