Respuesta :
Answer:
HomeGrown Company
Return on Investment Analysis:
Proposal Alpha Beta Gamma
Annual Income Average $351,145 $475,608 $704,490
Investment Average $302,054 $272,019 $626,564
Return on Investment $49,091 $203,589 $77,926
Average Rate of Return 0.16 0.75 0.12
Expected Rate of Return 20% 20% 20%
Accept/Reject Reject Accept Reject
Decision: Eliminate Alpha and Gamma, accept Beta based
Explanation:
a) The Required Rate of Return (RRR) of an investment is the minimum return an investor will accept for making an investment. It is the compensation expressed in percentage for a given level of risk associated with the investment. The RRR is used to analyze the profitability of potential investment projects. Once, this rate is determined, it will be compared with the Return on Investment to decide if the investment can be made or eliminated.
b) The Return on Investment (ROI) is a financial performance measure which evaluates the efficiency of an investment or compares the efficiency of a number of different investments. The ROI calculation is obtained dividing the benefit (or return) of an investment by the cost of the investment. The result is expressed as a percentage or a ratio.