Greenwich plc is considering adding two new products at a subsidiary to improve its overall...
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Greenwich plc is considering adding two new products at a subsidiary to improve its overall competitiveness. The new products are enthusiastically supported by the managers responsible and an immediate decision is required. It is normal for the managers to calculate the net present value (NPV) for the projects before it is accepted or rejected.
Details of the proposals
Project A | Project B | |
Capital cost | 750,000 | 750,000 |
Annual volume | 10,000 units | 6,944 units |
Life of project | 10 years | 10 years |
Unit () | Unit () | |
Selling price | 44 | 90 |
Costs: | ||
Labour | 12 | 13 |
Material | 9 | 33 |
Variable Overhead | 4 | 10 |
25 | 56 | |
Incremental fixed costs for projects | 53,000 | 100,000 |
The discount rate is 12%. Calculate the Net Present Value of the cash flows for Project A.
- 24,050.
- 24,260.
- 25,120.
- 25,550
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