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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 10.3$10.3 million. Investment A will generate $ 1.82$1.82
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 10.3$10.3 million. Investment A will generate $ 1.82$1.82 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $ 1.41$1.41 million at the end of the first year, and its revenues will grow at 2.6 %2.6% 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 7.4 %7.4%?
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