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A total of $50,000 was available for investing in a project to reduce insider theft in an...

Question:

A total of $50,000 was available for investing in a project to reduce insider theft in an appliance warehouse. Two alternatives identified as Y and Z were under consideration. The overall rate of return on the $50,000 was determined to be 40%, with the rate of return on the $20,000 increment between Y and Z at 15%. If Z is the higher first-cost alternative,

(a) what is the size of the investment required in Y and

(b) what is the rate of return on Y?

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Investment is keeping money in the assets that give higher returns in the future. The investments are made keeping in mind the ultimate goal for which money will be needed in the future. Investments are made in securities like bonds, shares, commodities, Gold ?EFT, mutual fund, Systematic Investment Plans, etc.

Answer and Explanation:

a). Size of the investment required in Y :

As Z is the higher cost alternative with increment of $20,000

Therefore, size of investment required in Y is $30,000

b) Rate of Return on Y :

{eq}\begin{align*} {\rm{Base}}\left( {25\% } \right) + {\rm{Increment}}\left( {15\% } \right) = {\rm{overall}}\left( {40\% } \right)\\ 41.7 + 15 = 56.7\% \end{align*} {/eq}


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