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Hancock Limited has been offered a seven-year contract to supply a part for the military. After careful study, the company has developed the following estimated
Hancock Limited has been offered a seven-year contract to supply a part for the military. After careful study, the company has developed the following estimated data relating to the contract: Cost of equipment needed $300,000 Working capital needed to carry inventories $50,000 Annual net cash inflow $90,000 Salvage value of equipment $10,000 The equipment would be in Class 7 with a 15% CCA rate. The working capital would be released at the end of the contract. The company's after-tax cost of capital is 10%, and the tax rate is 30%. Required: 1. Calculate the net present value of the contract and provide a recommendation to the CEO of Hancock Limited on accepting the contract. Round all calculations to the nearest dollar Hancock Limited has been offered a seven-year contract to supply a part for the military. After careful study, the company has developed the following estimated data relating to the contract: Cost of equipment needed $300,000 Working capital needed to carry inventories $50,000 Annual net cash inflow $90,000 Salvage value of equipment $10,000 The equipment would be in Class 7 with a 15% CCA rate. The working capital would be released at the end of the contract. The company's after-tax cost of capital is 10%, and the tax rate is 30%. Required: 1. Calculate the net present value of the contract and provide a recommendation to the CEO of Hancock Limited on accepting the contract. Round all calculations to the nearest dollar
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