*NEED URGENT HELP UPVOTE GUARANTEED* K&G Company currently sells 1.00 million units per year of...
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*NEED URGENT HELP UPVOTE GUARANTEED*
K&G Company currently sells 1.00 million units per year of a product to one customer at a price of $3.00 per unit. The customer requires that the product be exclusive and expects no increase in sales during the five-year contract. The company manufactures the product with a machine that it purchased seven years ago at a cost of $700,000. Currently, the machine has a book value of $430,000 but the market value is only $230,000. The machine is expected to last another five years, after which it will have no salvage value. Last year, the production variable costs per unit were as follows:
Direct materials
$2.20
Direct labour
0.60
Variable overhead
0.20
Total variable cost per unit
$3.00
The company president is considering replacing the old machine with a new one that would cost $800,000. The new machine is expected to last five years. At the end of that period, the salvage value will be $330,000. The president expects to save 4% of the companys total variable costs with the new machine. Assume that the companys desired rate of return is 11%. Calculate the net present value of the investment.
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Net present value
$
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