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of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% 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%?             c. In this case, when does picking the higher IRR give the correct answer as to                which investment is the better opportunity?

of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% 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%?             c. In this case, when does picking the higher IRR give the correct answer as to                which investment is the better opportunity?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10 million. Investment A will generate $2 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.5 million at the end of the first year and its revenues will grow at 2% 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%?

            c. In this case, when does picking the higher IRR give the correct answer as to

               which investment is the better opportunity?

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