You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of$9.9million. Investment
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Question:
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of$9.9million. Investment A will generate $2.12million per year(starting at the end of the firstyear) in perpetuity. Investment B will generate $1.56million at the end of the firstyear, and its revenues will grow at 2.2 %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 7.2%?
c. In thiscase, when does picking the higher IRR give the correct answer as to which investment is the bestopportunity?
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