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Two Mutually Exclusive Investment Opportunities Require an Initial Investment of $7

Question 27

Multiple Choice

Two mutually exclusive investment opportunities require an initial investment of $7 million. Investment A pays $2.0 million per year in perpetuity, while investment B pays $1.4 million in the first year, with cash flows increasing by 4% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent?


A) 3%
B) 7%
C) 13%
D) 15%

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