Spruce Bank Is Planning to Automate Some of Its Back

question 1

Multiple Choice

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. Should the bank undertake the project given the above information?

• A)Yes, because the NPV of the project is $500,000.
• B)Yes, because the NPV of the project is $342,016.
• C)No, because the NPV of the project is -$500,000.
• D)No, because the NPV of the project is -$201,458.
• E)No, because the IRR of the project is lower than 12 percent.

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