You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $
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Question:
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.8
$9.8 million. Investment A will generate $ 1.94
$1.94 million per year(starting at the end of the firstyear) in perpetuity. Investment B will generate $ 1.59
$1.59 million at the end of the firstyear, and its revenues will grow at 2.1 %
2.1% per year for every year after that.
a. Which investment has the higherIRR?
b. Which investment has the higher NPV when the cost of capital is 5.8 %
5.8%?
c. In thiscase, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the bestopportunity?
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