What size should you build-use the rate of return method

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Reference no: EM131603359

You are thinking about building an ice cream stand. You are considering three possible sizes. The smallest will cost $5,000, and you can sell 25,000 cones a year. The net revenue is 5 per cone. The next size costs $10,000 to build. With this size you can sell 75,000 cones per year at a net revenue of 5 a cone. The largest ice cream stand is very elaborate and costs $18,000 to build. With this stand you can sell 150,000 cones per year with a net revenue of 4 each. To be conservative, you assume a five-year life and no salvage value for all three sizes. If your minimum rate of return is 25%, should you build an ice cream stand? If so, what size should you build? Use the rate of return method.

Reference no: EM131603359

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