You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $9.5 million. Investment A will generate $2.12 million per year (st end of the first year) in perpetuity. Investment B will generate $1.55 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 NP when the cost of capital is 7.3%?
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?
