Question
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2.4 million per
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2.4 million per year(starting at the end of the first year) in perpetuity. Investment B will generate $1.7 million at the end of the first year, and its revenues will grow at 3.1% 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 7.3%. At what cost of capital would your decision change? The incremental IRR is?
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