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 9%? How much more is the preferred investment worth today?
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