Final answer:
The Gizmo Company is planning R&D investments in new household gadgets, with an added social benefit of 5% over the financial return. The company needs to raise financial capital, which could come from early-stage investors, reinvested profits, loans, bonds, or stock sales. Choosing a source of capital also decides how returns to investors are managed.
Step-by-step explanation:
The Gizmo Company is considering various investments in research and development (R&D) for new household gadgets. The company aims to assess the expected rates of return from these investments and factor in the additional social benefit.
Each potential investment project will contribute not only to the company's profitability but also to societal advantages, yielding a return that is 5% higher from a societal perspective than the financial return to the company itself. For instance, an investment yielding a 6% return for Gizmo Company would result in an 11% societal return.
When it comes to raising financial capital for such projects, Gizmo Company could explore options such as seeking early-stage investors, reinvesting profits, borrowing through banks or issuing bonds, and selling stock. Deciding on the source of capital also involves determining the payback mechanisms to the financial investors, which might pose a challenge for firms without demonstrated profitability.