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 $5.14 million per year. Your upfront setup costs to be ready to produce the part would be $7.92 million. Your discount rate for this contract is 7.7%.

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?

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

$5.04 million per year. Your upfront setup costs to be ready to produce the part would be $7.93 million. Your discount rate for this contract is

7.6%.

a. What is the IRR?

b. The NPV is $5.15 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?