Question
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
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 $4.91 million per year. Your upfront setup costs to be ready to produce the part would be $7.91 million. Your discount rate for this contract is 8.3%.
a. What does the NPV rule say you should do?
The NPV of the project is ____million. (Round to two decimal places.)
What should you do? (Select the best choice below.)
A.The NPV rule says that you should not accept the contract because the NPV>0.
B.The NPV rule says that you should accept the contract because the NPV>0.
C.The NPV rule says that you should accept the contract because the NPV<0.
D.The NPV rule says that you should not accept the contract because the NPV<0.
b. If you take the contract, what will be the change in the value of your firm? If you take the contract, the value added to the firm will be $_____ million. (Round to two decimal places.)
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