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Selecting the suitable projects within the given budget

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Your company is willing to invest up to $500,000 in small projects. The following options are on the table:

Option Total Capital Investment Increase in Annual Sales Increase in Annual Costs
A $150,000 $65,000 $10,000
B $400,000 $200,000 $65,000
C $300,000 $150,000 $60,000
D $200,000 $165,000 $58,000

Assuming an income tax rate of 40% and a minimum rate of return of 20%, what investment(s) would you recommend?

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Solution Summary

Some companies set the minimum acceptable return criteria for project selection. Solution to the given problem describes the steps to select the appropriate projects within the given budget and satisfy the minimum rate of return.

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Option Total Capital Increase in Increase in Increase in
Investment, Co Annual Sales, S Annual Costs, C Net Income, (S-C)*(1-Tax Rate)
A $150,000 $65,000 $10,000 $33,000
B $400,000 $200,000 $65,000 $81,000
C $300,000 $150,000 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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