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Question

# Amigo Mobility, which manufactures battery-powered mobility scooters, has $700,000 to invest. The company is considering three different battery projects that will yield the following rates of return:$ $\text{Deep cycle = 28\\%} \\ \text{Wet/flooded = 42\\%} \\ \text{Lithium ion = 19\\%}$ $The initial investment required for each project is$200,000, $100,000, and$400,000, respectively. If Amigo’s MARR is 15% per year and it invests in all three projects, what rate of return will the company make?

Solution

VerifiedAnswered 2 years ago

Answered 2 years ago

Step 1

1 of 2ROR is calculated as the weighted average of the given rates of return.

$\begin{align*} ROR &= \frac{0.28 \cdot \$200,000 + 0.42 \cdot \$100,000 + 0.19 \cdot \$400,000}{\$700,000}\\ &= \frac{\$174,000}{\$700,000}\\ &= 0.24857 =24.857\% \end{align*}$

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