ROI(%) = (total 5 year savings - estimated cost) / estimated cost

Cost Reduction 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. In this assignment you will 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. Projected Projected Investment Option Estimated Cost Savings 5 Year Next Year Savings Increase Technology Capabilities S220 mill. S34 mill. Vehicle X _ $273/unit - $180 mill. on Cost reduction 300k units $218/unit Vehicle Y _ $180 mill. on Cost reduction 425k units