Hi,
How are the annual savings in this case calculated? I am not understanding how to do it
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Annual Savings calculation?
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Hi there,
Thanks for the question on my case :)
Basically, there are 2 cost reduction types: Short-term/Immediate and Long-Term/continuous.
Short term cost reductions can be measured in just 1 year (so, multiply the annual expense by the reduction).
Long-term costs are considered perpetuity so should have an NPV calculation (cost saving divided by discount round), with a discount rate of 10%
Remember the listed costs are monthly so you need to multiple by 12.
The important thing here is the simplification. Like with most cases, the math isn't as thorough as what we would do in real life, but for the purposes of a 20 min case we simplify.
Hope this helps!
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Hi!
I see you already got a detailed answer below.
If you're casing at the moment, sharing with you a guide of the most common terms that pop up during interviews:
Hope this will help!
Cristian
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