NPV
Birmingham Bolt, Inc., has been approached by one of its customers about producing specialpurpose parts for a new home product. The customer wants parts per year for
eight years. To provide these parts, Birmingham would need to acquire a $ new production machine. The new machine would have no salvage value at the end of its eightyear life.
The customer has offered to pay Birmingham $ per unit for the parts. Birmingham's managers have estimated that, in addition to the new machine, the company would incur the
following costs to produce each part:
In addition, annual fixed outofpocket costs related to the production of these parts would be $
a Compute the net present value of the machine investment, assuming that the company uses a discount rate of percent to evaluate capital projects.
Note: Round your final answer to the nearest whole dollar.
b Based on the NPV computed in a is the machine a worthwhile investment?
