Santa Clara Corporation is consolidating investments T and U. Initial Costs and year-end cash flows follow. Investment T has a life of 3 years and investment U has a life of 4 years. The limiting resource that caused the two investments to be mutually exclusive cannot be reused. The required return is 10 percent. Which investment should be chosen? Why?
Year 0 1 2 3 4
T -50,000 25000 25000 25000
U -65000 25000 25000 25000 25000
For the mutually exclusive investments described in problem 4, which investment should be chosen if the constraining resource can be reused at the end of either investment’s life? Why?