Answer:
Profits for the three years = $140,000
Explanation:
Given:
Research cost = $150,000
Annual revenue = $200,000
Total revenue = 3 x $200,000 = $600,000
Three-year lease cost = $100,000
Labor cost = 60% of revenue
Find:
Profits for the three years = ?
Computation:
Net Revenue = Total revenue - research cost - three-year lease cost
Net Revenue = $600,000 - $150,000 - $100,000
Net Revenue = $350,000
Profits for the three years = Net Revenue - labor cost
Profits for the three years = $350,000 - 60%($350,000)
Profits for the three years = $350,000 - 210,000
Profits for the three years = $140,000
There will be profit of $140,000. So project should be adopted.
