EconomicsQUESTION 3An automobile company needs to decide of outsourcing shafts or producing shafts in the company. If the company outsource the shafts, theshafts could be purchased in the first year for $35 per shaft but the price of shaft for the subsequent years will increase by 5% from the previousyear. If the company decide to produce the shafts, an investment of $3,000,000 needed for equipment and upgrades. The total annual costassociated with production (e.g. fixed, variable, labor and material cost) is $1,000,000. The annual demand is 40,000 shafts for the next 7 years.The new equipment purchased will have a salvage value of $450,000 at the end of year 7.If the company interest rate is 5%, which of the following statements is correct?O The company should outsource the shafts and the annual equivalent savings is $119,794O The company should produce the shafts and the annual equivalent savings is $119,794The company should outsource the shafts since the AEC per unit from outsourcing will be $36.58 while the AEC per unit fromproducing the shaft is $ 40.32The company should produce the shafts since the AEC per unit from producing is $36.58 while the AEC per unit from outsourcing theshaft is $ 40.32

Given: If the company outsource the shafts, the shafts could be purchased in the first year for $35…

eds to decide of outsourcing shafts or producing shafts in the in the first year for $35 per shaft but the price of shaft for the to produce the shafts, an investment of $3,000,000 needed (e.g. fixed, variable, labor and material cost) is $1,000,000. T sed will have a salvage value of $450,000 at the end of year e is 5%, which of the following statements is correct?

eds to decide of outsourcing shafts or producing shafts in the in the first year for $35 per shaft but the price of shaft for the to produce the shafts, an investment of $3,000,000 needed (e.g. fixed, variable, labor and material cost) is $1,000,000. T sed will have a salvage value of $450,000 at the end of year e is 5%, which of the following statements is correct?

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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