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What is the net present value of expanding the production

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Question - A Store is thinking about expanding the production of Product A and eliminating Product B. Expanding sales of A should result in additional firm profits of $12,000 per year for the next 5 years, but will require the purchase of some additional equipment, costing $20,000. This equipment should be worth $3,600 at the end of 5 years.

By eliminating Product B, the firm will lose the product's $6,000 annual contribution margin but will save $12,000 of annual fixed costs.

Assuming a discount rate of 7%, what is the net present value of expanding the production of Product A and eliminating Product B?

Reference no: EM132739152

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