Compute the net present value of the proposed licensing

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Reference no: EM13508720

(Ignore income taxes in this problem.) A newly developed device is being considered by Fairway Foods for use in processing and canning peaches. The device, which is available only on a royalty basis, is reported to be a great labor saver. Fairway's production manager has gathered the following data:







Present Labor Proposed Royalty






Method
Method
Per year








Labor cost


$ 55,000 $ 7,000
Royalty cost




$ 24,000
Initial start up costs associated with the new device

$ 200,000










The new device must be ontained through a licensing arrangement with the developer. The license period lasts for only 8 years. Fairway Food's require rate of return is 10%.

Required:

a. By use of the incremental cost approach, compute the net present value of the proposed licensing of the new device. (negative amount should be indicated by a minus sign. Round "PV factor" to 3 decimal places. Round your other intermedate calculations and final answers to the nearest whole dollar. )
Net present value

Reference no: EM13508720

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