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 flows from the contract would be

$ 5.12

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

$ 8.11$

million. Your discount rate for this contract is

7.8 %

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?

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

The NPV of the project is

​$0.000.00

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 less than 0NPV<0.

B.The NPV rule says that you should not accept the contract because the

NPV greater than 0NPV>0.

C.The NPV rule says that you should accept the contract because the

NPV less than 0NPV<0.

D.The NPV rule says that you should accept the contract because the

NPV greater than 0NPV>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

​$nothing

million.  ​(Round to two decimal​ places.)

Answer 1

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

The NPV of the project is $5.13 Million

​What should you​ do?  ​(Select the best choice​ below.)

D.The NPV rule says that you should accept the contract because theNPV greater than 0NPV>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 ​$5.13 million.  ​(Round to two decimal​ places.)

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