Spruce Bank Is Planning to Automate Some of Its Back

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.