In considering a capacity expansion we have two alternatives.

The i rst alternative is expected to cost

$1,000,000 and has an expected proi t of $500,000 over the next three years. The second alternative has an expected cost of $800,000 and expected proi t of

$450,000 over the next three years. Which alternative should we select, and what is the expected value of the expansion? Assume a 10 percent interest rate.

 LO.1