Expected Rate of Return (%) R&D ($M) Interest Rate Cost of Funds (%) 20 20 10...
|
Expected Rate of Return (%) |
R&D |
Interest Rate Cost of Funds (%) |
|
20 |
20 |
10 |
|
15 |
40 |
10 |
|
10 |
60 |
10 |
|
5 |
80 |
10 |
|
3 |
100 |
10 |
Refer to the data. The firm's optimal amount of R&D spending is
Group of answer choices
$20 million.
$40 million.
$60 million.
$80 million.
Homework Answers
$60 million.
Explanation: Optimal amount of R&D takes place when the expected return equals the interest rate.
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Expected Rate of Return (%)
R&D
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Interest Rate Cost of Funds (%)
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20
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yield an expected rate of return of 25 percent or more. But suppose
there are $10 billion of investment projects yielding expected
returns of at least 20 percent; another $10 billion yielding at
least 15 percent; another $10 billion yielding at least 10 percent;
and so forth.
a. Draw this relationship between the expected rate of return and the amount of investment expenditure. Instructions: Use the tool provided 'ID' to...
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