nent #$5$

Question $8,$ P$7-23$

HW Score: $40\%,4$ of $10$

$($similar to$)$

points

Part $1$ of $7$

Points: $0$ of $1$

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $$10\mathrm{.}4$ million. Investment A will generate $$2\mathrm{.}16$ million per year $($starting at the end of the first year$)$ in perpetuity. Investment B will generate $$1\mathrm{.}44$ million at the end of the first year, and its revenues'will grow at $2\mathrm{.}9\%$ 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 $5\mathrm{.}4\%?$

c$.$ In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best opportunity?

a$.$ Which investment has the higher IRR?

The IRR of investment $A$ is $\%.($Round to the nearest integer.$)$