What is the smallest value of n

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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 It is likely to save an average of $100,000 per year compared to the old, outdated system.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. MARR 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% internal rate of return or greater is 0.90? Ignore the effects of income taxes. Also note that market value is independent of N. (Hint: Start with N = 4 years.)

Reference no: EM131507285

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