Final answer:
The best investment recommendation for the president of Donovan Enterprises would be one that offers a significant financial return along with a notable social benefit, taking into account the additional 5% societal return as demonstrated by the Gizmo Company case.
Step-by-step explanation:
To determine the best investment opportunity to recommend to the president of Donovan Enterprises, one must first assess the potential financial returns and societal benefits of each opportunity. Considering the case of the Gizmo Company, which is planning to develop new household gadgets, it is noted that each investment carries an additional 5% social benefit. For example, an investment yielding a 6% return for the Gizmo Company translates into an 11% societal return. Therefore, investments should be evaluated not only on their direct financial return but also on the broader impact on society.
If we prioritize both financial returns and social benefits, investments that provide returns above the threshold, and thus higher societal returns, should be preferred. This creates a positive externality, benefiting society at large. To support such a recommendation, an analysis of the expected rate of return for each opportunity should be compared to the social benefit. A good investment would be one that maximizes financial performance while also providing significant social benefits.Best Investment Opportunity for Donovan EnterprisesThe best investment opportunity to recommend to the president of Donovan Enterprises is investment in the research and development of household gadgets by The Gizmo Company. This recommendation is based on the expected rates of return from sales, as shown in Table 13.4, and the additional 5% social benefit that every investment would have. An investment that pays at least a 6% return to The Gizmo Company will pay at least an 11% return for society as a whole, and this aligns with the president's goal of making investments that benefit society.By investing in The Gizmo Company's research and development, the president can not only generate profits for Donovan Enterprises, but also contribute to overall societal progress and development.