Question

In: Finance

Your factory has been offered a contract to produce a part for a new printer. The...

Your factory has been offered a contract to produce a part for a new printer. The contract would last for

3

years and your cash flows from the contract would be

$5.11

million per year. Your upfront setup costs to be ready to produce the part would be

$8.12

million. Your discount rate for this contract is

7.9%.

a. What does the NPV rule say you should​ do?

b. If you take the​ contract, what will be the change in the value of your​ firm?

Solutions

Expert Solution

npv is present value of cash flows less initial investment

pv of cash flows is calculated using npv function in excel

npv is 5072763.82(workbook attached below)

according to npv rule project should be accepted when npv is positive

so we should accept the project

value addition to firm is 5072763.82

jeff jeffy answered 2 years ago
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