Company Z produces 40,000 units per year of a certain product. The production cost of these units is broken down as follows: Direct materials $ 40 Direct variable labor 7 Variable manufacturing overhead 3 = Variable unit cost $ 50 Currently this company has the possibility of purchasing this product at a unit price of $55 . If the company decides to purchase this product from a supplier, the current equipment used to produce it can be sold for $350,000 (consider this value to coincide with the book value). Additionally, the company estimates that the remaining life for the asset is 5 years, its salvage value at the end of this time is zero, and its annual depreciation is $70,000. If the tax rate is 50% and the MARR is 30%. Should Company Z continue producing said product? Solve by the Incremental NPV Method. Should Company Z continue producing said product? Solve by the Incremental IRR Method

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Incremental Analysis for Company Z Scenario 1 Continue Production Base Case Variable cost per unit 5... View the full answer