A new customer has placed an order for a turbine engine that has a variable cost...
A new customer has placed an order for a turbine engine that has a variable cost of $1.12 million per unit and a credit sales price of $1.64 million. Credit is extended for one period. Based on historical experience, payment for about 1 out of every 178 such orders is never collected. The required return is 2.1 percent per period. What is the NPV per unit if this is a one-time order? Multiple Choice
$421,819
$351,056
$516,407
$477,244
$534,290
Homework Answers
The NPV is computed as shown below:
= - variable cost + [ [ 1 - (1 / 178) ] x ( Sales ) ] / ( 1 + required return)
= - $ 1,120,000 + [ [ 1 - 0.005617978 ] x $ 1,640,000 ] / 1.021
= - $ 1,120,000 + 1,597,244.385
= $ 477,244 Approximately
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