Answered: Contract License In-house First cost, $…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Harmony Auto Group sells and services imported and domestic cars. The owner is considering the outsourcing of all its newcarwarranty servicework toWinslow, Inc., a private repair service that works on any make and year car. Both a 5-year contract basis or 10-year license agreement are available fromWinslow. Revenue from the manufacturer will be shared with no added cost incurred by the car/warranty owner. Alternatively, Harmony can continue to do warranty work in-house. Use the estimates made by the Harmony owner to perform an annualworth evaluation at 10% per year to select the best option. All dollar values are in millions.

Contract License In-house
First cost, $
-2
-20
Annual cost, $ per year
-1
-0.2
-4
Annual income,
2.5
1.3
8
$ per year
Life, years
5
10

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