You are deciding between two mutually exclusive investment projects. Both require the same upfront investment of $9.8 million. Investment A will generate $2 million per year in perpetuity (starting from the end of the first year) and Investment B will generate $1.45 million per year at the end of first year and, after the first year, its revenue will grow at 2.6% per year in perpetuity. The discount rate is 7.8%. a) Which project has a higher IRR? b) Which project would you choose to invest? Why?
You are deciding between two mutually exclusive investment projects. Both require the same upfront investment of $9.8 million. Investment A will generate $2 million per year in perpetuity (starting from the end of the first year) and Investment B will generate $1.45 million per year at the end of first year and, after the first year, its revenue will grow at 2.6% per year in perpetuity. The discount rate is 7.8%. a) Which project has a higher IRR? b) Which project would you choose to invest? Why?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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a and b please thank you
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