Suppose a manager is deciding whether or not to purchase a piece of equipment to make an input internally and has completed the majority of the net present value (NPV)calculations. The manager has correctly calculated the NPV to be equal to: NPV = ($1.023 × Q)- $350,000, where Q is the annual quantity of the input the firm needs. In order for the NPV to be positive, the firm needs at least _______units of the input each year.
A)153,985
B)342,131
C)350,369
D)289,526

Question

Quizplus · Accepted Answer

To find the minimum quantity of inputs needed for a positive NPV, we set NPV equal to zero, and solve for Q:
0 = ($1.023 × Q)- $350,000
$350,000 = $1.023 × Q
Q = $350,000 / $1.023
Q ≈ 342,131
Therefore, the firm needs at least 342,131 units of the input each year for the NPV to be positive.

Suppose a Manager Is Deciding Whether or Not to Purchase