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X Company has an opportunity to accept a special order that will result in immediate profit...

X Company has an opportunity to accept a special order that will result in immediate profit of $79,000. After doing some market research that cost $4,500, the marketing manager believes that if X Company accepts the order, the company will lose regular customers. Specifically, she believes the effect will be lost profits of $9,500 in each of the next 4 years.

Assuming a discount rate of 5%, what is the net present value of accepting the special order?

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Answer #1
Answer

Amount

 PV factor Present value
Immediate profit $        79,000 1 $                 79,000
Lost profits -$          9,500 3.54595 -$            33,686.53
Net present value $            45,313.48
$45,313 correct answer
Formula - Net present value = Present value of cash inflows – Total outflows
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