Question

You are comparing two investment options. Option A requires $10,000 on day 0, and pays five...

You are comparing two investment options. Option A requires $10,000 on day 0, and pays five annual payments starting with $5,000 the first year followed by four annual payments of $2,500 each. Option B also requires $10,000 on day 0, and pays five annual payments of $3,000 each. Using the incremental IRR approach, can you conclude which one of the following statements is correct given these two investment options?

Given a positive rate of return, Option A has a higher present value than Option B.

Given a zero rate of return, Option B has a lower present value than Option A.

Both options are of equal value today.

None of the above

Given a positive rate of return, Option B has a higher present value than Option A.

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