Spruce Bank Is Planning to Automate Some of Its Back

question 91

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. What must be the minimum annual cost savings in order to accept this project? Assume a five-year horizon and 8 percent discount rate.

• A)$200,000.
• B)$222,256.
• C)$250,456.
• D)$279,724.
• E)$500,913.

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Definitions:

Willing To Pay

The maximum amount a consumer is ready to spend on a good or service, reflecting the value they place on it.

Minimum Prices

A price floor set by the government, ensuring that goods and services cannot be sold below this level, typically to protect producers.

Demand-Side Market Failures

Underallocations of resources that occur when private demand curves understate consumers’ full willingness to pay for a good or service.

Supply Curve

Represents the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply to the market.