Calculate the NPV of both projects

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Question - You are choosing between two mutually exclusive investment opportunities.

Both require the same initial investment of $15 million.

Investment A will generate $6 million in revenues at the end of the first year and its revenues will grow at 1% per year forever.

Investment B will generate $3 million in revenues at the end of the first year and its revenues will grow at 3% per year forever.

The cost of capital is 6%.

a) Calculate the NPV of both projects.

b) If the projects are mutually exclusive, which investment should you choose, and why?

c) At what cost of capital (r) are you indifferent between the two projects (i.e., r that makes the NPV of both projects the same)?

Reference no: EM132919187

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