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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of$10million. Investment A will generate$2.4 million per year (starting at
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of$10million. Investment A will generate$2.4 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $2.1million at the end of the first year, and its revenues will grow at 4.5%per year for every year after that. Use the incremental IRR rule to correctly choose between investments A and B when the cost of capital is 6.2%. At what cost of capital would your decision change?
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