You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.7$9.7 million. Investment A will generate $ 1.86$1.86 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $ 1.49$1.49 million at the end of the first year, and its revenues will grow at 2.5 %2.5% 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 5.4 %5.4% ?
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?