A firm must decide which of these 3 alternatives to adopt and expand its capacity. The firm wishes a minimum 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.
A) initial cost=100,000, annual profit= 30,000, profit rate=30%
B) initial cost= 300,000, annual profit= 66,000, profit rate= 22%
C) initial cost= 500,000, Annual profit= 80,000, profit rate= 16%
Which alternative should be selected? Use a challenger-defender rate of return analysis.