Suppose a firm anticipates that an R&D expenditure of $200 million will result in a new production process that will reduce costs and thus create a one-time added profit of $220 million a year later. The firm's expected rate of return is

Question

Quizplus · Accepted Answer

The expected rate of return is calculated as the profit ($220 million) minus the investment ($200 million), divided by the investment ($200 million), which equals 10 percent.

Suppose a Firm Anticipates That an R&D Expenditure of $200