Two Mutually Exclusive Investment Opportunities Require an Initial Investment of $8

question 24

Multiple Choice

Two mutually exclusive investment opportunities require an initial investment of $8 million.Investment A then generates $1 million per year in perpetuity,while investment B pays $500,000 in the first year,with cash flows increasing by 5% per year after that.Determine the NPV for which an investor would regard both opportunities as being equivalent.

• A)-$1 million
• B)$0
• C)$1 million
• D)$2 million
• E)$8 million

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Definitions:

Mirror Image Rule

A principle in contract law stating that an offer must be accepted exactly without modifications; any changes to the terms effectively make the acceptance a counteroffer.

Rejection

The act of refusing or dismissing a proposal, idea, or application.

Liberal Fashion

Adopts a broad and open-minded approach in style or dressing, often embracing diversity and non-conformity in fashion choices.

Reasonable Means

Methods or actions that are considered fair, moderate, and appropriate under typical circumstances.