Question

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.6 million. Investment A will generate $ 2.19 million per year​ (starting at the end of the first​ year) in perpetuity. Investment B will generate $ 1.53 million at the end of the first​ year, and its revenues will grow at 2.7 % 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 6.6 %​? c. In this​ case, when does picking the higher IRR give the correct answer as to which investment is the best​ opportunity?

Answer 1