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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 $74,000. After doing some market research that cost $5,000, 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 $10,000 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 $        74,000 1 $                 74,000
Lost profits -$        10,000 3.54595 -$            35,459.50
Net present value $            38,540.50
$ 38,540.50 correct answer
Formula - Net present value = Present value of cash inflows – Total outflows
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