The companyis evaluating two specific proposals to market a new proposal. The current interest rate is 10 %.

Proposal A calls for setting up an in-house manufacturing shop to make the product, requiring an investment of 500,000 dollars. The expected profits for the first to fifth years are 150,000 ; 200,000 ; 250,000 ; 150,000 and 100,000 dollars respectively.

Proposal B suggest that the manufacturing operation be outsourced by contracting an outside shop, requiring a front-end payment of 300,000 dollars. The expected profits for the first to fifth years are 50,000 ; 150,000 ; 200,000 ; 300,000 and 200,000 dollars respectively. The expected profits would be lower in earlier years due to third-party markup.

Which proposal should the company accept? Prove your answer.