Greenwich plc is considering adding two new products at a subsidiary to improve its overall...
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Accounting
Greenwich plc is considering adding two new products at a subsidiary to improve its overall competitiveness. The new products are enthusiastically supported by the managers responsible and an immediate decision is required. It is normal for the managers to calculate the net present value (NPV) for the projects before it is accepted or rejected.
Details of the proposals
Project A
Project B
Capital cost
750,000
750,000
Annual volume
10,000 units
6,944 units
Life of project
10 years
10 years
Unit ()
Unit ()
Selling price
44
90
Costs:
Labour
12
13
Material
9
33
Variable Overhead
4
10
25
56
Incremental fixed costs for projects
53,000
100,000
The discount rate is 12%. Calculate the Net Present Value of the cash flows for Project A.
24,050.
24,260.
25,120.
25,550
Answer & Explanation
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