Y9 You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of$10.2 million. Investment A will generate $2.13 million per year (starting at the end of the first year) in perpetuity.Investment B will generate $1.58 million at the end of the first year, and its revenues will grow at 2.1% per year for everyyear after that.a. Which investment has the higher IRR?b. Which investment has the higher NPV when the cost of capital is 6.7%?c. In this case, for what values of the cost of capital does picking the higher IRR give the correct answer as to whichinvestment is the best opportunity?a. Which investment has the higher IRR?The IRR of investment A is%. (Round the nearest integer.)

In capital budgeting and other type of analysis the internal rate of determ is said to be the date…

Answered: a. Which investment has the higher IRR?…

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a. Which investment has the higher IRR? The IRR of investment A is ... %. (Round to the nearest integer.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of
$10.2 million. Investment A will generate $2.13 million per year (starting at the end of the first year) in perpetuity.
Investment B will generate $1.58 million at the end of the first year, and its revenues will grow at 2.1% 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 6.7%?
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?
a. Which investment has the higher IRR?
The IRR of investment A is%. (Round the nearest integer.)

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