Spruce Bank is planning to automate some of its back office functions and reduce operating costs.The installation of new computers and software will require an initial investment of $1,000,000.The savings generated because of reduced personnel cost is $200,000 per year.The bank uses an 8 percent rate of discount to evaluate cost saving projects which are expected to last 10 years.

The maximum cost savings that can be generated with this new equipment has been estimated to be $264,237.In order to accept this project,what is the minimum number of years the projected savings must be realized before the project breaks even?
A)3.7 years.
B)4.7 years.
C)5.7 years.
D)6.7 years.

Question

Spruce Bank is planning to automate some of its back office functions and reduce operating costs.The installation of new computers and software will require an initial investment of $1,000,000.The savings generated because of reduced personnel cost is $200,000 per year.The bank uses an 8 percent rate of discount to evaluate cost saving projects which are expected to last 10 years.

The maximum cost savings that can be generated with this new equipment has been estimated to be $264,237.In order to accept this project,what is the minimum number of years the projected savings must be realized before the project breaks even?
A)3.7 years.
B)4.7 years.
C)5.7 years.
D)6.7 years.

Quizplus · Accepted Answer

11efbab9_c327_b53c_8e22_b16b4fc29737_TB1314_00
 Minimum number of years = 4.68.

Spruce Bank Is Planning to Automate Some of Its Back