Question
A firm that manufactures DVD players for automakers currently has excess capacity.The firm expects that it will exhaust its excess capacity in three years.At that
A firm that manufactures DVD players for automakers currently has excess capacity.The firm expects that it will exhaust its excess capacity in three years.At that time it will have to invest $2 million to build new capacity.Suppose that the firm can accept additional work as a subcontractor for another company.By doing so, the firm will receive a net cash inflow of $120,000 immediately and in each of the next two years.However, the firm will have to begin expansion two years earlier than originally planned to bring new capacity on line.Assume a discount rate of 10%.What is the NPV if the firm accepts the subcontractor job?(Show your work.Label $.No decimal places required.Highlight or bold your answer.)
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