Two Mutually Exclusive Investment Opportunities Require an Initial Investment of $5

question 16

Multiple Choice

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%
• E)12%

---

Definitions:

Attitude Choice

The process by which individuals form judgments and preferences based on their feelings and beliefs towards an object or situation.

Mobile Payments

Transactions made for goods or services through a mobile device, such as a smartphone or tablet.

System

A set of interconnected elements or parts that work together as a whole for a common purpose or function.

Opinion Leader

An individual whose views on a subject are taken to be authoritative and influential, often influencing the opinions of others.