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8-37 A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a min- imum annual profit of 20%
8-37 A firm must decide which of three alternatives to adopt to expand its capacity. The firm wishes a min- imum 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. Alt. A B Initial Cost $100,000 300,000 500,000 Annual Profit $30,000 66,000 80,000 Profit Rate 30% 22% 16% Which alternative should be selected? Use a challenger-defender rate of return analysis
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