Transformation Motor Company produces a part that is used in the manufacture of one of its products.The unit manufacturing costs of this part,assuming a production level of 6,000 units,are as follows:
Alba Motors Company has offered to sell 6,000 units of the same part to Transformation for $17.50 per unit.Assuming the company has no other use for its facilities and that the fixed manufacturing costs are unavoidable,what should Transformation do?
Definitions:
After-Tax Discount Rate
The rate used to discount future cash flows to their present value after accounting for taxes.
Depreciation Tax Shield
A reduction in taxable income resulting from the allowance for depreciation expenses on assets.
Net Advantage
The benefit or advantage one entity has over competitive entities, often assessed in terms of efficiency, cost, or market position.
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