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1. The management of Burrow Mfg. would like to purchase a specialized production machine for...

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Accounting

1. The management of Burrow Mfg. would like to purchase a specialized production machine for $95,000. The machine is expected to last three years, with a salvage value of $5,000. Annual maintenance costs will total $12,000, and annual labor and material savings are predicted to be $55,000. The company's required rate of return in 15%. Find the NPV of this investment.

$4,404

$9,564

$5,623

$6,466

2. Tina's Manufacturing Company currently makes 100 units of a necessary component. Management is considering outsourcing this component for a cost of $1,200 per unit. Tina's incurs the following total production costs:

Direct Materials $80,000
Direct Labor 13,000
Variable Overhead 40,000
Fixed Overhead 27,000

If production is outsourced, none of the fixed overhead costs will be eliminated. How would profits be impacted if Tina's bought the component?

Profits would go down by $40,000

Profits would go up by $27,000

Profits would go up by $40,000

Profits would go up by $13,000

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