Suppose a firm anticipates that an R&D expenditure of $100 million will result in a new production process that will reduce costs and thus create a one-time added profit of $112 million a year later. The firm's expected rate of return is
A) 0.12 percent.
B) 112 percent.
C) 12 percent.
D) 2 percent.

Question

Quizplus · Accepted Answer

The expected rate of return can be calculated using the following formula:

Expected Rate of Return = (Expected Profit / R&D Expenditure) x 100

In this case, the expected profit is $112 million, and the R&D expenditure is $100 million. Plugging these numbers into the formula, we get:

Expected Rate of Return = ($112 million / $100 million) x 100 = 112%

Therefore, the best choice is C) 12 percent.

Suppose a Firm Anticipates That an R&D Expenditure of $100