X Company is thinking about expanding the production of Product X and eliminating Product Y

Accounting Nov 19, 2020

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 $8,000 per year for the next 5 years, but will require the purchase of some additional equipment, costing $10,000. This equipment should be worth $3,800 at the end of 5 years.

By eliminating Product Y, the firm will lose the product's $5,000 annual contribution margin but will save $14,000 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?

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