6. You are deciding between two mutually exclusive investment opportunities. Project A requires an investment of...

6. You are deciding between two mutually exclusive investment opportunities. Project A requires an investment of $1,000 at t = 0 and generates a perpetual cash flow of $150 starting at t = 1. Project B requires an investment of $1,000 at t = 0 and generates a cash flow of $60 at t = 1. After t=1thecashflowgrowsattherateof4%inperpetuity (so the cash flow att=2 is 4% higher than the cash flow at t = 1, the cash flow at t = 3 is 4% higher than the cash flow at t = 2 and so on). Which investment has the higher IRR? Which investment has the higher NPV when the cost of capital is 6%? Which investment should you pick (if any) if the cost of capital is 6%? For what range of values for the opportunity cost of capital would you make the opposite decision, compared to part c?

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ekkarill92 answered 1 year ago

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