You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.5 million. Investment A will generate $2.03 million per year (starting at the end of the first year) in perpetuity. Investment B will generate $1.55 million at the end of the first year and its revenues will grow at 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 6.2%