A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a minimum annual profit of 20% of the initial cost of each separable increment of investment.. Any money not invested in capacity expansion can be invested elsewhere for an annual yield of 20% of initial cost.

Which alternative should be selected? Use a rate of return analysis.

Initial Cost Annual Profit $30,000 Profit Rate Alt $100,000 300,000 30% 66,000 22% 500,000 80,000 16%