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i) 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 $ 5.23 million per year. Your upfront setup costs to be ready to produce the part would be $ 8.19 million. Your discount rate for this contract is 7.8 %

a. What does the NPV rule say you shoulddo? (two decimal)

b. If you take thecontract, what will be the change in the value of yourfirm? (two decimal)

ii. You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $5,900 and will be posted for one year. You expect that it will generate additional revenue of $1,062 a month. What is the paybackperiod? (one decimal)

iii. You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $ 9.8 million Investment A will generate $ 1.93 million per year(starting at the end of the firstyear) in perpetuity. Investment B will generate $ 1.4 million at the end of the firstyear, and its revenues will grow at 2.9 % per year for every year after that.

a. Which investment has the higher IRR? (two decimal)

b. Which investment has the higher NPV when the cost of capital is 7.8 %?

c. In thiscase, when does picking the higher IRR give the correct answer as to which investment is the bestopportunity?