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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 10.0 million. Investment A will generate $ 2.00 million per year? (starting at the end of the first? year) in perpetuity. Investment B will generate $ 1.50 million at the end of the first? year, and its revenues will grow at 2.0 % 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 7.0 %?

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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Financial Management, Finance

Category:- Financial Management
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