Question
OLSC Inc. produces screws and plans to supply HomeManufacturing Inc. with 140,000 cartons of specialized screws over the next 4 years. The NPV of the
OLSC Inc. produces screws and plans to supply HomeManufacturing Inc. with 140,000 cartons of specialized screws over the next 4 years. The NPV of the current project that supplies 120,000 cartons of screws is about $2.8 million. HomeManufacturing just called and changed its order to 500,000 cartons of specialized screws without changing the price it will pay OLSC for these screws. No additional equipment will need to be purchased to meet the 500,000 carton production. Variable costs will stay the same at the per unit basis (but will increase overall given the higher number of cartons needed). How, if at all, would the NPV of this project change with the updated order?
Group of answer choices
IRR will decrease and drop below the discount rate making the project unacceptable
NPV will decrease given the higher overall variable costs and lower overall OCF
NPV will increase given the increase in Revenues, Taxable Income and OCF
NPV will not change and remain about $2.8 million
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