1.Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years, and your cash flows from the contract would be

$ 4.94 million per year. Your upfront setup costs to be ready to produce the part would be $ 7.98 million. Your discount rate for this contract is 7.7 %

a. What is the IRR?

b. The NPV is $ 4.82 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?

2.You are considering making a movie. The movie is expected to cost $10.0 million up front and take a year to produce. After that, it is expected to make $5.0 million in the year it is released and $2.0 million for the following four years. What is the payback period of this investment? If you require a payback period of two years, will you make the movie? Does the movie have positive NPV if the cost of capital is 10.0%?

3.

The Jones Company has just completed the third year of a five-year MACRS recovery period for a piece of equipment it originally purchased for $295,000.

a. What is the book value of the equipment?

The book value of the equipment after the third year is $

b. If Jones sells the equipment today for $179,000 and its tax rate is 35%, what is the after-tax cash flow from selling it?

Note: Assume that the equipment is put into use in year 1.