Question: Extended Learning Exercise The additional investment in a new computer system is a certain $300,000. It is likely to save an average of $100,000 per

Extended Learning Exercise The additional investment in a new computer system is a certain $300,000. It is likely to save an average of $100,000 per year compared to the old, outdated system. Because of uncertainty, this estimate is expected to be normally distributed, with a standard deviation of $7,000. The market value of the system at any time is its scrap value, which is $20,000 with a standard deviation of $3,000. on such investments is 15% per year.
What is the smallest value of N (the life of the system) that can exist such that the probability of getting a 15% or greater is 0.90? Ignore the effects of income taxes. Also note that market value is independent of N.

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EPW15 300 k 100 k PA15N 20 k PF15N Pr IRR 15 090 or PrPW 0 i 15 090 Step 1 Try N 4 ... View full answer

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