A company has the choice of either selling 600 defective units as scrap or rebui

Question

A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $8.00 per unit. Alternatively, it could rebuild them with incremental costs of $2.00 per unit for materials, $2.00 per unit for labor, and $1.00 per unit for overhead, and then sell the rebuilt units for $16.00 each. What should the company do?

a) NPV of ($1,980.61) and willing to pay $37,000 for the machine

b) NPV of ($31,562.19) and not willing to pay for the machine since NPV is negative.

c) NPV of $(663.14) and willing to pay $36,336.86 for the machine

d) NPV of $663.14 and willing to pay $37,000 for the machine

e) NPV of $4,618 and willing to pay $32,381.67 for the machine

Explanation / Answer

b) NPV of ($31,562.19) and not willing to pay for the machine since NPV is negative.

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