X Company is thinking about expanding the production of Product X and eliminating Product Y....
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Accounting
X Company is thinking about expanding the production of Product X and eliminating Product Y. Expanding sales of X should result in additional firm profits of $12,000 per year for the next 6 years, but will require the purchase of some additional equipment, costing $11,000. This equipment should be worth $3,300 at the end of 6 years.
By eliminating Product Y, the firm will lose the product's $5,000 annual contribution margin but will save $13,000 of annual fixed costs.
Assuming a discount rate of 7%, what is the net present value of expanding the production of Product X and eliminating Product Y?
