Bridgeport Inc. has $652,920 to invest. The company is trying to decide between two alternative uses...
Bridgeport Inc. has $652,920 to invest. The company is trying to decide between two alternative uses of the funds. One alternative provides $97,304 at the end of each year for 10 years, and the other is to receive a single lump-sum payment of $2,027,870 at the end of the 10 years. Which alternative should Bridgeport select? Assume the interest rate is constant over the entire investment.
Homework Answers
Alternative which have higher IRR will be selected.
IRR of first alternative = 652920/97304 = 6.710
IRR = 8%
IRR of second alternative = 652920/2027870 = 0.322
IRR = 12%
Second alternative should be selected.
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