Two mutually exclusive investment opportunities

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You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $9.9 million. Investment A will generate $2.16 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.49 million at the end of the first year, and its revenues will grow at 2.8% 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 5.1%?

c. In this? case, when does picking the higher IRR give the correct answer as to which investment is the best opportunity?

Reference no: EM132032981

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