Consider the table above.An investor-developer demands a return of at least 9 percent on cost.Which of the following statements is TRUE based on the information above?
A)Neither project produces a sufficient expected return
B)The 275 unit project produces a sufficient return,but the 300 unit project does not
C)The 300 unit project produces a sufficient return,but the 275 unit project does not
D)Both projects produce sufficient return,but the 275 unit project produces a higher return than the 300 unit project

Question

Consider the table above.An investor-developer demands a return of at least 9 percent on cost.Which of the following statements is TRUE based on the information above?
A)Neither project produces a sufficient expected return 
B)The 275 unit project produces a sufficient return,but the 300 unit project does not 
C)The 300 unit project produces a sufficient return,but the 275 unit project does not 
D)Both projects produce sufficient return,but the 275 unit project produces a higher return than the 300 unit project

Quizplus · Accepted Answer

To determine if a project produces a sufficient return, we need to compare the expected return on cost (ERC) to the investor-developer's demand of 9 percent. For the 275 unit project, ERC is 11 percent, which is greater than the investor-developer's demand of 9 percent. Therefore, the 275 unit project produces a sufficient return. For the 300 unit project, ERC is only 8 percent, which is less than the investor-developer's demand of 9 percent. Therefore, the 300 unit project does not produce a sufficient return. Thus, only statement C is true.

Consider the Table Above