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 $51,000. After doing some market research that cost $5,000, 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 5 years.

Assuming a discount rate of 6%, what is the net present value of accepting the special order? [Note: Use the Present Value tables in the Coursepack.]

A: $5,225 B: $7,577 C: $10,986 D: $15,930 E: $23,098 F: $33,492

Solutions

Expert Solution

Answer
The correct option is C : $ 10,986
Explanation
Period Cash Flows Discount Factor Discounted Cash flow
0 $      51,000 1 $                               51,000
1 -$        9,500 0.943 -$                                 8,959
2 -$        9,500 0.89 -$                                 8,455
3 -$        9,500 0.84 -$                                 7,980
4 -$        9,500 0.792 -$                                 7,524
5 -$        9,500 0.747 -$                                 7,097
Net Present Value $                               10,986

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