94%(35)33 out of 35 people found this document helpful
This preview shows page 2 - 4 out of 5 pages.
21.You are deciding between two mutually exclusive investment opportunities. Both require the same initialinvestment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% 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%?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?