An organization is considering a new program. The business analyst believes that the benefits to the organization would equate to $1,550,000 in five years. If the rate of return for this program is si

The correct answer is A. $1,158,250. To find the maximum investment (present value), use the Present Value formula: PV = FV ÷ (1 + r)^n, where FV = $1,550,000, r = 6% (0.06), and n = 5 years. PV = $1,550,000 ÷ (1.06)^5 = $1,550,000 ÷ 1.3382 ≈ $1,158,250. The organization should invest no more than $1,158,250 today t

Program Benefits Management

Question

An organization is considering a new program. The business analyst believes that the benefits to the organization would equate to $1,550,000 in five years. If the rate of return for this program is six percent what is the maximum amount the organization should invest in this program?

Options

A$1,158,250
BIt depends on the internal decision making process.
C$1,550,000
D$2,074,249

How the community answered

(24 responses)

A
79% (19)
B
4% (1)
C
13% (3)
D
4% (1)

Explanation

To find the maximum investment (present value), use the Present Value formula: PV = FV ÷ (1 + r)^n, where FV = $1,550,000, r = 6% (0.06), and n = 5 years. PV = $1,550,000 ÷ (1.06)^5 = $1,550,000 ÷ 1.3382 ≈ $1,158,250. The organization should invest no more than $1,158,250 today to break even on a $1,550,000 benefit in five years at a 6% rate of return. Investing more than this would yield a negative net present value (NPV), meaning the program would not be financially justified.

Topics

#Program Financial Management#Present Value#Investment Analysis#Benefits Realization Management

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