A company is considering a group of research proposals that are related to eithe

Question

A company is considering a group of research proposals that are related to either product A, product B or product C. It has been decided that at most one proposal will be selected from each set of proposals related to a particular product. The company expects the research to extend over a 5-year period. In the past the company has considered a return on investment of at least 10% to be satisfactory. If the money is available is (a) unlimited, (b) $80,000 and (c) $55,000 which proposals should be selected? What are the average rates of return in each case? Proposal Initial Investment Net Annual Income ROR A-1 $ 40,000 $ 11,651 14% A-2 62,000 17,199 12 B-1 20,000 5,966 15 B-2 25,000 7,110 13 B-3 30,000 8,950 15 C-1 15,000 4,369 14 C-2 20,000 5,548 12 C-3 35,000 9,941 13 C-4 50,000 13,518 11

Explanation / Answer

a) As the money available is unlimited , so the company will chose projects for each product A,B & C which offer highest rate of return . So the company will selects the projetc A-1 , B-1 ( not B-3 because it has more price ) , C - 1 b) In this case the money available is $80000 . So the projects which give maximum return are : A1 , B-2 , C - 1 c) In this , for maximum return the projects are : A1 & C 1

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