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What is net present value of expanding production of product

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Question: 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 $12,000 per year for the next 8 years, but will require the purchase of some additional equipment, costing $18,000. This equipment should be worth $3,400 at the end of 8 years.

By eliminating Product B, the firm will lose the product's $4,000 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: EM132761534

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