Question

A company invests in a recovery unit to separate valuable metals from effluent streams. The capital investment is Rs. 10 lakhs. The recovered metals generate Rs. 4 lakhs per year. If the annual return on this investment is 15%, the annual operating costs should be \(\underline{\hspace{3cm}}\) lakhs of rupees (correct to 1 decimal place).

Hint:

Annual return required = (return rate) × (capital investment). Use revenue − cost = required return.

Answer 1

Correct Answer: 2.5

Required annual return:
\[ 0.15 \times 10 = 1.5\ \text{lakhs per year} \]
The net annual profit after operating cost must equal the required return:
\[ \text{Profit} = \text{Revenue} - \text{Operating Cost} \]
Thus,
\[ 1.5 = 4 - \text{Operating Cost} \]
Solving:
\[ \text{Operating Cost} = 4 - 1.5 = 2.5\ \text{lakhs} \]