A store manager must decide how many rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $50. If the interest rate is 12 percent and each rug cleaner costs $500/yr (all costs included), including replacement cost, how many should the manager rent?

Question

Business

Gunner Wilson

31 August, 00:02

A store manager must decide how many rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $50. If the interest rate is 12 percent and each rug cleaner costs $500/yr (all costs included), including replacement cost, how many should the manager rent?

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Tia Bradley · Answer 1

The store manager must decide to buy 3

Explanation:

Given that:

The first: $200 a year The second $150 The third $75, The fourth $50 Interest rate is 12 percent Investment: $500

As we know that the rate of return will be: Income / Investment

So the rate of return of:

The first: $200 / $500 = 0.4 = 40% The second $150 / $500 = 0,3 = 30% The third $75 / $500 = 0.15 = 15% The fourth $50 / $500 = 0.1 = 10%

Only three rug cleaners have the rate of return greater than the interest rate so the store manager must decide to buy 3