# solution

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of \$9.8 million. Investment A will generate \$2.16 million per year (starting at the end of the first year) in perpetuity. Investment B will generate \$1.58 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 7.6%?
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? u. IIIIIIIIIIIIILTIUS LIU YFIUI IN
C. The IRR of investment Ais 22%. (Round to the nearest integer.) The IRR of investment Bis 18 %. (Round to the nearest integer.) Which project has the higher IRR? A (Select from the drop-down menu.)
b. Which investment has the higher NPV when the cost of capital is 7.6%? The NPV of investment Ais \$ 18.62 million. (Round to two decimal places.) The NPV of investment is \$ 18.93 million. (Round to two decimal places.) You should pick investment
B . (Select from the drop-down menu.)
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? (Select the best answer below.)
A. The IRR rule will give the correct answer for greater than 7.82% but than 22%
B. The IRR rule will give the correct answer for discount rates less than 7.82%.
c. The IRR rule will give the correct answer for discount rates greater than 22%.
D. The IRR rule will give the correct answer for discount rates greater than 18% but less than 22%.

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