A recently hired CEO (chief executive officer)wants to reduce future production costs to improve the company’s earnings, thereby increasing the value of the company’s stock. The plan is to invest $70,000 now and $50,000 in each of the next 2 years to improve productivity. By how much must annual costs decrease in years 3 through 10 to recover the investment plus a return of 15% per year?
What will be an ideal response?
A = [70,000(F/P,15%,2) + 50,000(F/A,15%,2)](A/P,15%,8)
= [70,000(1.3225) + 50,000(2.1500)](0.22285)
= $44,587
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