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Perpetuity Question?


I'm studying an investment question.

Company A's Price is 2 million pounds
Company B's Price is 3 million pounds

Company A's profitability is consistent with a perpetuity of 300,000 pounds per year.

Company B's profitability is consistent with a perpetuity of 435,000 pounds per year.

Maximum purchase cost is 4million pounds.
Discount rate is 12 percent to both.

A) What company or companies, if any should be purchased with the npv rule
B) with irr rule?
C) Which company should be purchased?


Any help would be greatly appreciated...I'm having fits with this homework.

A) Find NPV for the companies. When NPV > 0, the companies should be purchased.

B) Find IRR for the companies. When IRR > discount rate, companies should be purchased.

C) NPV is a better measure. Whichever company NPV analysis says is valuable is the one you should purchase.

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