New computer-controlled lighting system

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Reference no: EM132016188

1. A firm spends $800,000 annually for electricity. Alternatively, the firm could install a new computer-controlled lighting system that will reduce electric bills by $90,000 in each of the next three years. Assume the interest rate is 4%. If the system costs $230,000 to be fully installed,

a. Is this a good investment? Show your derivation.

b. What if the interest rate rises to 8%? Explain the intuition.

2. Your 60 year old mother is in reasonable good health and has just received her retirement funds of $140,000 from her employer of 40 years. As a financial management student, she trusts you to create an investment portfolio which will be suitable for her. Her tolerance for risk is low. Provide justification for your options.

Reference no: EM132016188

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