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NPV Birmingham Bolt, Inc. has been approached by one of its customers about producing 800,000 special-purpose parts for a new home product. The customer
NPV Birmingham Bolt, Inc. has been approached by one of its customers about producing 800,000 special-purpose parts for a new home product. The customer wants 100,000 parts per year for eight years. To provide these parts, Birmingham would need to acquire a $455,000 new production machine. The new machine would have no salvage value at the end of its eight-year life The customer has offered to pay Birmingham $7.50 per unit for the parts. Birmingham's managers have estimated that, in addition to the new machine, the company would incur the following costs to produce each part Direct labor Direct material $2.00 2.50 Vanable overhead 2.00 Total 1650 in addition, annual fixed out-of-pocket costs related to the production of these parts would be $20,000 a. Compute the net present value of the machine investment, assuming that the company uses a discount rate of 9 percent to evaluate capital projects Note: Round your final answer to the nearest whole dollar $57,216 b Based on the NPV computed in (a) is the machine a worthwhile investment? No
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