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Warrenton Golf currently produces 200,000 cases of golf balls per year at a variable cost of $9.75. Equipment is available for $500,000 that will reduce
Warrenton Golf currently produces 200,000 cases of golf balls per year at a variable cost of $9.75. Equipment is available for $500,000 that will reduce variable costs by $2.25 per unit, while increasing cash fixed costs by $200,000. The equipment will have no salvage value at the end of its four-year life. Warrenton faces a 40% income tax rate and a 12% cutoff rate.
-Determine the NPV of the investment
-Determine the change in NPV if the equipment has a $25,000 residual value
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