Exercise 15-24 Name:
Insert your answers in the gray-shaded cells or select from the drop-down list.
If an answer is incorrect, the word “wrong” will appear.
a.
Point
in
Time
Description Cash Flows xPV Factor =Present Value
0 Initial outlay (500,000)$ 1.0000 (500,000)$
1-8 Fixed costs per year (20,000)$ 5.5348 (110,696)
1-8 Contr. margin per year 100,000$ 5.5348 553,480
NPV (57,216)$
b. Based on NPV, this is an investment.
c.
Other considerations would include whether refusing to produce this part for the customer
would cause a loss of other business from the customer. The company should also consider
going back to the customer and asking for a higher price that would cause the project to have a
positive NPV.
Solution
unacceptable
In addition to the NPV, what other factors should Birmingham’s managers consider when
making the investment decision?
Other considerations would include whether refusing to produce this part for the customer
would cause a loss of other business from the customer. The company should also consider
going back to the customer and asking for a higher price that would cause the project to have a
positive NPV.
Solution
In addition to the NPV, what other factors should Birmingham’s managers consider when
making the investment decision?