Question
A company must choose between two investments. Investment C requires an immediate outlay of $55,000 and then, in two years, another investment of $35,000. Investment
A company must choose between two investments. Investment C requires an immediate outlay of $55,000 and then, in two years, another investment of $35,000. Investment D requires annual investments of $25,000 at the beginning of each of the first four years. C would return annual profits of $18,500 for 10 years beginning with the first year. Ds profits would not start until Year 4 but would be $37,500 in Years 4 to 10 inclusive. The residual values after 10 years are estimated to be $35,000 for C and $25,000 for D.
a. Which investment should the company choose if its cost of capital is 12%? The company should choose investment D.
b. How much more is the preferred project worth today? (Do not round intermediate calculations and round your final answer to the nearest whole dollar.) The preferred project is worth $ more today
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