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Mutually exclusive investment opportunities

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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $11.0 million. Investment A will generate $2.40 million per year? (starting at the end of the first? year) in perpetuity. Investment B will generate $1.70 million at the end of the first? year, and its revenues will grow at 3.2% per year for every year after that.

Which investment has the higher IRR??

Which investment has the higher NPV when the cost of capital is 8.1%??

Which investment should you select?

a. Project A had the higher IRR, project B has the higher NPV. Select project B with the higher NPV. In general, NPV is the more reliable evaluation method and IRR should not be used to compare projects.

b. Project A had the higher IRR, project B has the higher NPV. Select project A with the higher IRR. NPV can only be used to compare projects with equal initial investments.

c. Project B had the higher IRR, project A has the higher NPV. Select project A with the higher NPV. In general, NPV is the more reliable evaluation method and IRR should not be used to compare projects.

d. Both projects are equally valuable. IRR and NPV are both reliable methods to compare projects' value.

Reference no: EM133238843

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