Assume, instead that each year the chances that a worker will leave the firm, given he/she has not left to date, are 20% (i.e. the firms expected turnover rate for these sales positions is 20% per year). Which employee should it hire now?
Use your spreadsheet program to increase the firm’s discount rate higher and higher above 10%. What happens to its expected present value of profits for each worker? Do the same for the turnover rate. What happens in each case to the firm’s decision regarding which of the two workers to hire? Why?