Question
Please Answer ASAP! Marie owns a parcel of land and is considering two possible development options which both use her signature Marie Pool technology. Option
Please Answer ASAP!
Marie owns a parcel of land and is considering two possible development options which both use her signature Marie Pool technology.
Option A: Create a private surf club, in which case she would have to invest $10 million today (EOY 0). The club would then generate an annual free cash flow of $2 million in perpetuity starting EOY 1.
Option B: Create a surf resort and hotel open to the public, in which case she would have to invest $50 million today (EOY 0). The resort would then generate an annual free cash flow of $6.5 million in perpetuity starting EOY 1.
Assume Marie's discount rate is 10% and that she can only invest in one of the two options.
Marie should:
a. Accept both options because they both have positive NPV
b. Reject both options because both have an IRR less than 10%
c. Choose Option B because it has a higher NPV
d. Choose Option A because it has a higher IRR
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