Answered step by step
Verified Expert Solution
Question
...
1 Approved Answer
FRETER VERSION RACK NEXT K&G Company currently sells 1.05 million units per year of a product to one customer at a price of $3.10 per
FRETER VERSION RACK NEXT K&G Company currently sells 1.05 million units per year of a product to one customer at a price of $3.10 per unit. The customer requires that the product be exclusive and expects no increase in sales during the five-year contract. The company manufactures the product with a machine that it purchased seven years ago at a cost of $747,000. Currently, the machine has a book value of $433,000 but the market value is only $238,000. The machine is expected to last another five years, after which it will have no salvage value. Last year, the production variable costs per unit were as follows: Direct materials $2.80 Direct labour 0.90 Variable overhead 0.30 Total variable cost per unit $4.00 The company president is considering replacing the old machine with a new one that would cost $812,000. The new machine is expected to last five years. At the end of that period. the salvage value will be $336,000. The president expects to save 4% of the company's total variable costs with the new machine Assume that the company's desired rate of return is 12%. Calculate the net present value of the investment. (If the net present value is negativ, se either a negative an preceding the number e.o. 45 or parenthesese.. (45). For calculation purposes, use s decimal places as displayed in the factor table provided... 125124 and final answer to decimal places, 0.5,275) Click here to view Pitable Net present value $ Using the net present value method, should the company replace the old machine with the new one? net present value The president replace the equipment based on a LINK TO TERT
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started