Question

Chris LeBlanc estimates that if he does 4.75 hours of research using data that will cost $71.00, there is a good chance that he can improve his expected return on a $10,000, 1-year investment from 8.1% to 10.2%. Chris feels that he must earn at least $19.00 per hour on the time he devotes to his research. a. Find the cost of Chris's research. b. By how much (in dollars) will Chris's return increase as a result of the research? c. On a strict economic basis, should Chris perform the proposed research? a. Chris's research costs $(Round to the nearest cent)

Answer 1

a. Cost of research:

4.75 hours at $19.00 per hour	$90.25
Research data	$71.00
Total	$161.25

b. Increase in expected return:

New return of 10.2% - Current return of 8.1% = 2.1% increase

$10,000 investment x 0.021 increase = $210

c. Yes; the expected increase in return is greater than the cost of doing the research.