Question

The following investment opportunities are available to an investment center manager: Project A: Investment $800,000; Annual Earnings $90,000. Project B: Investment $100,000; Annual Earnings $20,000. Project C: Investment $300,000; Annual Earnings $25,000. Project D: Investment $400,000; Annual Earnings $60,000. If the investment manager is currently making a return on investment of 16 percent, which project(s) would the manager want to pursue? Project A & C Project B & D Project B only None of these projects

Answer 1

Project B

Step-by-step explanation:

Project A: Investment $800,000; Annual Earnings $90,000. ⇒ return on investment = $90,000 / $800,000 = 11.25%

Project B: Investment $100,000; Annual Earnings $20,000. ⇒ return on investment = $20,000 / $100,000 = 20%

Project C: Investment $300,000; Annual Earnings $25,000. ⇒ return on investment = $25,000 / $300,000 = 8.33%

Project D: Investment $400,000; Annual Earnings $60,000. ⇒ return on investment = $60,000 / $400,000 = 15%

Only the return on investment of project B is higher than 16%, the other projects' ROI is lower than 16%, therefore, they should be rejected.