An investor is considering the two investments shown above. Her cost of capital is 8%. Which of the following statements about these investments is true?
Time: 0 1 2 3
Investment A: -$1 million $300,000 $400,000 $500,000
Investment B: -$1 million $500,000 $400,000 $300,000
A) The investor should take investment A since it has a greater net present value (NPV).
B) The investor should take investment A since it has a greater internal rate of return (IRR).
C) The investor should take investment B since it has a greater net present value (NPV).
D) The investor should take investment B since it has a greater internal rate of return (IRR).
Answer: C
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