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Two mutually exclusive investment opportunities require an initial investment of $5 million.

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Question

Two mutually exclusive investment opportunities require an initial investment of $5 million. Investment A then generates $1.5 million per year in perpetuity, while Investment B pays $1 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent?;A. 3%;B. 6%;C. 9%;D. 10%;Additional Requirements;Level of Detail: Show all work

 

Paper#23372 | Written in 18-Jul-2015

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