You have proposed two projects for approval. One has an IRR of 4% and one has an IRR of 7%. Each one will require an investment of $1 million or a total of $2 million. The CFO has told you that funds will be raised for the projects by issuing $1million of equity at a 9% cost and $1 million in bonds at a 3% cost.

Both projects should be approved.

Neither project should be approved

Only the project with the IRR of 7% should be approved.