Question
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.4 million. Investment A will generate $1.98 million per
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.4 million. Investment A will generate $1.98 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.42 million at the end of the first year, and its revenues will grow at 2.4% per year for every year after that.
a. What is the IRR for both investments?
b. What is the NPV for both investments when the cost of capital is 7.6 %?
c. The best investment opportunity when picking the higher IRR occurs for all discount rates higher than what discount rate?
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