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What is net present value of increase in contribution margin

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Question - Data relating to Randall Ltd.'s single product are as follows:

Selling price $5.47

Direct materials 0.82

Direct labour 0.81

Overhead (60% fixed) 1.00

Gross Profit $2.84

The company currently produces 51937 units.Randall Ltd. is considering purchasing a new machine that is expected to decrease variable costs by 17%. The expected useful life of the new machine is 10 years.

Assuming a weighted average cost of capital of 8%, what is the net present value of the increase in contribution margin relating to this investment?

a. $120268

b. There is a decrease in the contribution margin.

c. $196587

d. $8302

Reference no: EM132784850

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