A company $100,000.They can invest this money in bonds with annual coupons yielding j1 = 6%.There are two other investments available which each cost $100,000:
I.A perpetuity paying $6300 per year.
II.An investment paying $13,000 per year for the next 10 years.
The company can only choose one of the three investment options.Assuming the cost of capital is 6%.Which of the following is the correct answer? (Both the decision and explanation must be correct) .
A) Invest in the bond because the NPV > 0.
B) Invest in the bond because it has the highest IRR.
C) Invest in I because it has the highest IRR.
D) Invest in II because the NPV > 0.
Correct Answer:
Verified
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