Your factory has been offered a contract to produce a part for a new printer. The contract would last for

3

years and your cash flows from the contract would be

$5.11

million per year. Your upfront setup costs to be ready to produce the part would be

$8.12

million. Your discount rate for this contract is

7.9%.

a. What does the NPV rule say you should do?

b. If you take the contract, what will be the change in the value of your firm?