Final Answer:
A manager with a current ROI of 22% has been offered a project with a positive net present value and a simple rate of return of 18% higher than the current ROI of 22%.
Step-by-step explanation:
Return on Investment (ROI) is a financial metric that assesses the profitability of an investment relative to its cost. In this scenario, the manager's current ROI is 22%, indicating that for every unit of currency invested, a return of 22% is realized. The offer of a project with a positive net present value (NPV) is an attractive proposition. NPV considers the time value of money, discounting future cash flows to their present value. A positive NPV indicates that the project is expected to generate more value than its cost.
Furthermore, the project's simple rate of return of 18% is another financial indicator that provides insight into the project's profitability. The simple rate of return is a straightforward metric calculated by dividing the annual incremental net operating income by the initial investment cost. While the current ROI is 22%, the 18% simple rate of return on the new project suggests a potentially favorable return. However, it's important to note that ROI and simple rate of return may have different calculations, making direct comparison complex. Therefore, the manager should carefully analyze both metrics, considering the unique characteristics and risks associated with the new project before making a decision.
In conclusion, the manager faces a decision point where the current ROI of 22% sets a benchmark. The positive NPV and 18% simple rate of return for the new project indicate its potential attractiveness, but a comprehensive evaluation considering the specifics of each metric and the project's characteristics is necessary for an informed decision.