Question: You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $9.9 million. Investment A will generate $2.16 million per
You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $9.9 million. Investment A will generate $2.16 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.41 million at the end of the first year, and its revenues will grow at 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 7.3%? c. In this case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity?
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