[12 MARKS] Foie Company has been offered a six-year contract to supply a part to the military. After careful study, the company has developed the following estimated data relating to the contract: Cost of equipment needed Working capital needed to carry inventories Annual net cash inflow Salvage value of equipment $90,000 $40,000 $25,000 $8,000 The equipment for cach project is in Class 22 with a 30% CCA rate. The company would take the maximum CCA allowable each year. It is not expected that the contract would be extended beyond the initial contract period of six years. The working capital would be released for use elsewhere at the end of the contract. The income tax rate is 30%. Foie's after-tax cost of capital is 12%. Assume that the salvage value of the Equipment which is received at the end of the contract is NOT subject to tax. Required: PLEASE SHOW ALL OF YOUR CALCULATIONS FOR FULL MARKS. a) [8 MARKS] Use net present value analysis to determine whether or not the contract should be accepted. Based on your Net Present Value analysis should the contract be accepted? (Round all calculations to the nearest dollar.) THE PRESENT VALUE OF EACH INFLOW AND OUTFLOW OF CASH MUST BE CALCULATED SEPARATELY. FOR EXAMPLE, THE PRESENT VALUE OF THE ANNUAL NET CASH INFLOW MUST BE CALCULATED SEPARATELY FROM THE PRESENT VALUE OF THE CASH INFLOW FROM THE SALVAGE VALUE OF EQUIPMENT. b) [2 MARKS] If instead of using a net present value analysis, the company decided to use the payback method in order to decide whether or not to accept this contract, can you think of two drawbacks (i.e. criticisms) with the use of this method? Please state them in no more than two sentences. c) [2 MARKS] Suppose that Foie Company is offered not only the six-year supply contract stated above, but also a different six-year supply contract that requires an initial investment of $250,000 instead of the $130,000 required in the above stated contract. Since Foie Company does not have the financial resources to accept both projects, it must decide between the two. Is there any problem with using the net present value method to rank these two projects? If so, what is, it and how can it be rectified (i.e. corrected)? Your answer should not exceed two sentences