The Cookie Division of Cake Boss Company is considering an investment in a new project.The project has an estimated cost of $1,000,000.If Cake Boss Company has a target rate of return of 12%,how large does the return on investment on this project need to be to generate $150,000 of residual income?
A)15%
B)12%
C)25%
D)27%

Question

Quizplus · Accepted Answer

The correct answer is D. The return on investment (ROI) needed to generate $150,000 of residual income is calculated as follows:ROI = (Residual income / Investment) * 100ROI = ($150,000 / $1,000,000) * 100ROI = 15%Since the target rate of return is 12%, the ROI needed to generate $150,000 of residual income is 15% - 12% = 3%. Therefore, the ROI needed to generate $150,000 of residual income is 15% + 3% = 18%.

The Cookie Division of Cake Boss Company Is Considering an Investment