A company must choose between two investments. Investment C requires an immediate outlay of $50,000 and then, in two years, another investment of $30,000. Investment D requires annual investments of $25,000 at the beginning of each of the first four years. C would return annual profits of $16,000 for 10 years beginning with the first year. D's profits would not start until Year 4 but would be $35,000 in Years 4 to 10 inclusive. The residual values after 10 years are estimated to be $30,000 for C and $20,000 for D. Which investment should the company choose if its cost of capital is 15%? How much more is the preferred project worth today?

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The Answer of A company must choose between two investments. Investment C requires an immediate outlay of $50,000 and then, in two years, another investment of $30,000. Investment D requires annual investments of $25,000 at the beginning of each of the first four years. C would return annual profits of $16,000 for 10 years beginning with the first year. D's profits would not start until Year 4 but would be $35,000 in Years 4 to 10 inclusive. The residual values after 10 years are estimated to be $30,000 for C and $20,000 for D. Which investment should the company choose if its cost of capital is 15%? How much more is the preferred project worth today?

A Company Must Choose Between Two Investments