A software provider buys blank Bluray DVDs at $$550$ per hundred and currently uses $2$ million DVDs per year. The manager believes that it may be cheaper to make the DVDs rather than buy them. Direct production costs $($labour$,$ materials, fuel$)$ are estimated at $$2\mathrm{.}50$ per DVD$.$ The equipment needed would cost $$3$ million. The equipment should last for $15$ years, provided it is overhauled every $5$ years at a cost of $$250000$ each time. The operation will require additional current assets of $$400000.$ The company's required rate of return is $12$ per cent. Evaluate the proposal using NPV formula.

Answer rating: 100% (QA)

To evaluate the proposal we need to calculate the net present value NPV of the project which represents the difference between the present value of th... View the full answer