Question
In: Accounting
X Company has an opportunity to accept a special order that will result in immediate profit...
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?
Solutions
Expert Solution
| 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 | ||
ekkarill92 answered 3 years agoRelated Solutions
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