Question: When you hired Dan to manage your business you agreed
When you hired Dan to manage your business, you agreed to pay him a bonus of 10 percent of profits at the end of each year. The company now has a choice between two projects. Project A will generate profits of $50,000 per year, and detailed financial calculations show that it will increase the value of the firm by $123,100. Project B will generate profits of $40,000 per year but will increase the firm’s value by $125,600. Which project is Dan likely to choose and why? Which project would you, the owner of the firm, prefer?
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