You are deciding between two mutually exclusive investment opportunities. Both require the

same initial investment of $$100$ million. Project $1$ will generate $$20$ million per year $($starting at

the end of the first year$)$ in perpetuity. Project $2$ will generate $$11$ million at the end of the first

year and its cash flow will grow at $5\%$ per year for every year after that.

a$.$ Calculate the IRR for each project. Which project would you choose based on the IRR rule?

b$.$ Suppose the cost of capital is $9\%.$ Which project would you choose if you used the

discounted payback rule with a cutoff period of $10$ years?

c$.$ Which project would you choose based on the NPV rule? Consider the following two

scenarios for the cost of capital:

i$.$ Assume that the cost of capital is $9\%.$

ii$.$ Assume that the cost of capital is $14\%.$

d$.$ For what range of values for the cost of capital would you choose Project $1$ and for what

range of values for the cost of capital would you choose Project $2?$ Briefly motivate your

answer.