You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $
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Question:
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ million. Investment A will generate $ million per yearstarting at the end of the first year in perpetuity. Investment B will generate $ million at the end of the first year, and its revenues will grow at 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
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?
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