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 $4.98 million per year. Your upfront setup costs to be ready to produce the part would be $8.04 million. Your discount rate for this contract is 7.8%.

a. What is the IRR?

b. The NPV is $4.84 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?

2. Marian Plunket owns her own business and is considering an investment. If she undertakes the investment, it will pay $5,680 at the end of each of the next 3 years. The opportunity requires an initial investment of $1,420 plus an additional investment at the end of the second year of $7,100.

A. What is the NPV of this opportunity if the interest rate is 1.7% per year? B. Should Marian take it?