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

question 33

Multiple Choice

Two mutually exclusive investment opportunities require an initial investment of $7 million. Investment A pays $1.5 million per year in perpetuity, while investment B pays $1.2 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) 4%
• B) 8%
• C) 15%
• D) 17%

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Definitions:

Agreeableness

A personality trait characterized by warmth, kindness, and a cooperative disposition.

Antagonism

Antagonism refers to active hostility or opposition between individuals or groups, often manifesting in conflicts or competitive situations.

Cooperative

Working together towards a common goal or benefit.

Reciprocal Determinism

A concept in psychology that suggests a person's behavior both influences and is influenced by personal factors and the social environment.