Question

Fairmont Textile has a plant in which employees have been having trouble with carpal tunnel syndrome​ (CTS, an inflammation of the nerves that pass through the carpal​ tunnel, a tight space at the base of the​ palm), resulting from​ long-term repetitive​ activities, such as years of sewing. It seems as if 15 of the employees working in this facility developed signs of CTS over the last five years.​ DeepSouth, the​ company's insurance​ firm, has been increasing​ Fairmont's liability insurance steadily because of this problem. DeepSouth is willing to lower the insurance premiums to​ $16,000 a year​ (from the current​ $30,000 a​ year) for the next five years if Fairmont implements an acceptable​ CTS-prevention program that includes making the employees aware of CTS and how to reduce the chances of it developing. What would be the maximum amount that Fairmont should invest in the program to make it​ worthwhile? The​ firm's interest rate is​ 12% compounded annually.

Answer 1

Answer: Fairmont Textile has a plant in which employees have been having trouble with carpal tunnel syndrome​ (CTS, an inflammation of the nerves that pass through the carpal​ tunnel, a tight space at the base of the​ palm), resulting from​ long-term repetitive​ activities, such as years of sewing. It seems as if 15 of the employees working in this facility developed signs of CTS over the last five years.​ DeepSouth, the​ company's insurance​ firm, has been increasing​ Fairmont's liability insurance steadily because of this problem. DeepSouth is willing to lower the insurance premiums to​ $16,000 a year​ (from the current​ $30,000 a​ year) for the next five years if Fairmont implements an acceptable​ CTS-prevention program that includes making the employees aware of CTS and how to reduce the chances of it developing. What would be the maximum amount that Fairmont should invest in the program to make it​ worthwhile? The​ firm's interest rate is​ 12% compounded annually.