Your company is trying to determine whether to spend $500,000 in process improve
ID: 2382872 • Letter: Y
Question
Your company is trying to determine whether to spend $500,000 in process improvements.The projected savings increase in time as given in table 1.The alternative is to do nothing and leave the $500,000 in investments earning interest.What interest rate is required in the investments for the better choice to be to do nothing?
Table 1. Savings obtained from $500,000 investment.
Year
Savings ($)
1
25,000
2
75,000
3
100,000
4
125,000
5
250,000
Year
Savings ($)
1
25,000
2
75,000
3
100,000
4
125,000
5
250,000
Explanation / Answer
Using IRR formula of Excel,
Interest rate = irr({-500000,25000,75000,100000,125000,250000})
Interest rate = 3.70%
Answer
If interest rate is required in the investments is 3.70% or more for the better choice to be to do nothing
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.