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Question: You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. Investment A will generate $ 2.18 million per year (starting at the end of the first? year) in perpetuity. Investment B will generate $1.56 million at the end of the first year, and its revenues will grow at 2.9 % 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 6.4%?

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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Category:- Basic Finance
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