Question content area top Part 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 $ 5.00 million per year. Your upfront setup costs to be ready to produce the part would be $ 8.00 million. Your discount rate for this contract is 8.0 %. a. What is the IRR? b. The NPV is $ 4.89 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
Question content area top Part 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 $ 5.00 million per year. Your upfront setup costs to be ready to produce the part would be $ 8.00 million. Your discount rate for this contract is 8.0 %. a. What is the IRR? b. The NPV is $ 4.89 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question content area top Part 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 $ 5.00
million per year. Your upfront setup costs to be ready to produce the part would be $ 8.00 million. Your
discount rate for this contract is 8.0 %. a. What is the IRR? b. The NPV is $ 4.89 million, which is positive
so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?
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