Question

Questions the new process will cost $1.8 milion now, how much must be saved each year to cover the investment in years at An engineering company is considering to start a new process to reduce costs per year? $356.320 $300.000 297 300 $437 814

Answer 1

Initial Investment =$1.8 million

Time = 6 year

rate=12%

Hence PV=A*(1-(1+r)^-n)/r

1.8=A*(1-(1+12%)^-6)/12%

or, 1.8=A*(1-1.12^-6)/0.12

or, 1.8=A*(1-0.5066)/0.12

or, 1.8=A*0.4934/0.12

or, A = 1.8*0.12/0.4934

or, A = 0.437806 million

or, A =$437806

Hence last option is correct