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What is the net present value of making the part instead

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Question

X Company currently buys 9,000 units of a component part each year from a supplier for $7.40 each but is considering making them instead. Variable costs of making would be $5.50 per unit; additional annual fixed costs would be $7,000.

Equipment would have to be purchased for $30,000 and will last for 7 years, at which time it will have a disposal value of $7,000.

Assuming a discount rate of 4%, what is the net present value of making the part instead of continuing to buy it?

Reference no: EM132315555

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