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)12 percent.
C)112 percent.
D)2 percent.

Question

Quizplus · Accepted Answer

The expected rate of return is calculated as (Profit - Investment) / Investment. Here, it is ($112 million - $100 million) / $100 million = $12 million / $100 million = 0.12 or 12%.

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