Answer:
NPV = 661468 – 728000 = -66532
Explanation:
Direct Material 410
Direct Labour 100
Variable manufacturing O/H 90
Variable cost to manufacture 1 unit 600
Loss on purchase component from outside supplier
(630 – 600) * 3000 units 90000
(-) Contribution from released facility 10000
Operating Income would Decrease by 80000
Present Value of Future cash flow from Proposal X :-
PVAF for 5 years at 10% = 3.791
PVIF for 5th year at 10% = 0.621
PV of annual cash inflow (164000 * 3.791) 621724
PV of Residual value (64000 * 0.621) 39744
Present Value of Future cash flow 661468
NPV = 661468 – 728000 = -66532
