Reducing production costs is an important part of improving your company's profitability. StratSim allows you to invest in cost reduction in two ways: technology improvements and cost reduction upgrades. Increasing technology capabilities can lower unit costs for all vehicles in the firm. Upgrading a platform using the cost reduction option will lower unit costs for that vehicle only. calculate the return on investment (ROI) for different cost- reduction options to help you in making your investment decisions.

1. Given the following project options, calculate the savings generated over five years. Assume next year's savings hold constant for all five years. Then calculate the return on investment for each option.

Increase Technology Capabilities $220 mill. $34 mill.

Vehicle X Cost reduction $180 mill.

$273/unit on 300k units

Vehicle Y Cost reduction $180 mill.

$218/unit on 425k units