1. The company is evaluating two specific proposals to market anew product. The current interest rate is 10%. Proposal A calls forsetting up an in-house manufacturing shop to make the product,requiring an investment of $500,000. The expected profits for thefirst years are $150,000, $200,000, $250,000, $150,000, and$100,000, respectively. Proposal B suggests that the manufacturingoperation be outsourced by contracting an outside shop, requiring afront-end payment of $300,000. The expected profits for the firstto fifth years are $50,000, $150,000, $200,000, $300,000, and$200,000, respectively. The expected profits would be lower inearlier years due to third-party markup. Which proposal should thecompany accept?
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