Question
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. investment A will generate $1.88 million per
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. investment A will generate $1.88 million per year (starting at the end of the first year) in perpetuity. investment B will generate $1.52 million at the end of the first year, and its revenues will grow at 2.1% per year for every year after that.
A. Which investment has the higher IRR?
B. Which investment has the higher NPV when the cost of capital is 7.6%?
C. In this case, when does picking the higher IRR give the correct anser as to which investment is the best opportunity?
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