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

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%