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After spending $ 1 0 comma 1 0 0 on client - development, you have just been offered a big production contract by a new
After spending $ comma on clientdevelopment, you have just been offered a big production contract by a new client. The contract will add $ comma to your revenues for each of the next five years and it will cost you $ comma per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $ comma now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $ comma and use theyear MACRS schedule to depreciate it It will be worthless at the end of the project. Your current production manager earns $ comma per year. Since she is busy with ongoing projects, you are planning to hire an assistant at $ comma per year to help with the expansion. You will have to immediately increase your inventory from $ comma to $ comma It will return to $ comma at the end of the project. Your company's tax rate is and your discount rate is What is the NPV of the contract? Note: Assume that the equipment is put into use in year Calculate the free cash flows below for years through : Round to the nearest dollar.
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