1. Given the followingproject options,calculate the savings generated over five
ID: 2524159 • Letter: 1
Question
1. Given the followingproject options,calculate the savings generated over five years. Assume next year's savings hold constant for all five years. Then calculate the return on investment for each option. Investment OptionEstimated Cost. Projected SavingsProjected 5 Year Savings ROI Next Year $34 Mil. | ?ncrease Technology | Capabilities Vehicle X Cost Reduction» Vehicle Y Cost Reduction $220 Mil. l $273/unit on 300k units $180 Mil $218/unit on 425k 2. Given the returns you calculated,which option makes the most sense as a cost-reduction investment? 3. What other factors might you consider when evaluating the investment options?.Explanation / Answer
Projected savings
ROI
In mil
$34mil* 5
=$170mil
=$220-$170/$220*100
=$22.727
$81.9mil*5
=$409.5 mil
=$409.5-$180/409.5*100
=$56.04
$92.65mil*5
=$463.25
=463.25- 180/463.25*100
=$61.14
Option 3 is most possible one that vehicle Y
Notes: ) step1 first you calculate projected saving for five years
Step2 calculate ROI =projected savings-cost/cost
Important thing is to covert savings into millions for vehicle X and Y
2) when you are calculating ROI you should take many factors
Risk and return
Estimated saving is given constant but in reality may change
Cost is also may change in future
Market fluctuatins etc
Estimated cost estimated costProjected savings
ROI
In mil
Increase technology capabilities $220mil$34mil* 5
=$170mil
=$220-$170/$220*100
=$22.727
Vehicle X cost reduction $180mil$81.9mil*5
=$409.5 mil
=$409.5-$180/409.5*100
=$56.04
Vehicle Y cost reduction $180mil$92.65mil*5
=$463.25
=463.25- 180/463.25*100
=$61.14
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