Question

X Company has an opportunity to accept a special order that will result in immediate profit of $50,000. The marketing manager believes that if X Company accepts the order, the company will lose regular customers. Specifically, she believes the effect will be lost profits of $9,500 in each of the next 4 years.

Assuming a discount rate of 6%, what is the net present value of accepting the special order?

Answer 1

CALCULATION OF THE PRESENT VALUE OF THE SPECIAL ORDER
Year	Cash Flow (A)	PVF of $ 1 @ 6% (B)	Present Value (AXB)
0	$                50,000.00	1.0000	$                      50,000.00
1	$                 -9,500.00	0.9434	$                       -8,962.26
2	$                 -9,500.00	0.8900	$                       -8,454.97
3	$                 -9,500.00	0.8396	$                       -7,976.38
4	$                 -9,500.00	0.7921	$                       -7,524.89
	Total Present Value =		$                      17,081.50
Answer = Net Present Value of accepting the special order =			$                      17,081.50