Question
Disco Corporation has been offered a 6-year contract to supply computing services for a bank. Disco has developed the following estimated data for the contract:
Disco Corporation has been offered a 6-year contract to supply computing services for a bank. Disco has developed the following estimated data for the contract:
Cost of special computer needed $200,000
Working capital needed 10,000 Annual cash inflows (revenues) for 6 years 300,000
Annual cash outflows (expenses) for 6 years 265,000
Servicing of computer at the end of year 4 30,000
Salvage value of the computer at the end of 6 years 15,000
The companys required rate of return is 8%. The working capital will be released at the end of the 6-year contract term. Based on a net present value analysis, should they accept the contract? Ignore the impact of income taxes.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started