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You have $600 to invest, and are choosing between two projects, both of which cost $600 up front and will yield six years of returns.
You have $600 to invest, and are choosing between two projects, both of which cost $600 up front and will yield six years of returns. The returns for the first investment will start at $120 (in nominal $) a year from now and increasing at 3% annually. The returns for the second start at $130 (in real $) and increase at 1% annually.
If your real hurdle rate is 5% and the expected inflation rate is 2.5%, which of these investments should you choose (if any)?
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