Spruce Bank Is Planning to Automate Some of Its Back

question 65

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. On further analysis, it is estimated that the project has a finite life of 5 years, i.e.further investment will be required to generate the same savings.Should they undertake the project if they assume a five-year horizon for evaluating the project?

• 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 greater than 15 percent.

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Definitions:

Repeated Task

An activity or duty that is performed over and over again as part of a routine or job requirement.

Prospects Questions

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Rehearsed Demonstrations

Pre-planned and practiced presentations of a product or service designed to showcase its features and benefits to potential customers.

Industrial Product Presentations

Demonstrations or showcases aimed at highlighting the features and benefits of products designed for industrial or commercial use.