X Company is thinking about expanding the production of Product A and eliminating Product B....
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Accounting
X Company is thinking about expanding the production of Product A and eliminating Product B. Expanding sales of A should result in additional firm profits of $8,000 per year for the next 5 years, but will require the purchase of some additional equipment, costing $20,000. This equipment should be worth $3,700 at the end of 5 years.
By eliminating Product B, the firm will lose the product's $8,000 annual contribution margin but will save $14,000 of annual fixed costs.
Assuming a discount rate of 6%, what is the net present value of expanding the production of Product A and eliminating Product B?
| A: $23,592 | B: $31,377 | C: $41,732 | D: $55,503 | E: $73,820 | F: $98,180 |
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