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 | ||
ekkarill92 answered 3 years agoRelated Solutions
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