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 $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.13 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?
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 $4.83 million per year. Your upfront setup costs to be ready to produce the part would be $8.13 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?
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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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
$4.83
million per year. Your upfront setup costs to be ready to produce the part would be
$8.13
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?
Transcribed Image Text: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 $4.83 million per year. Your upfront setup costs to be ready to produce the part would
be $8.13 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?
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