a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
=5.03[1-(1.083)^-3]/0.083
=5.03*2.56321019
=$12.89 million
NPV=Present value of inflows-Present value of outflows
=12.89-7.97million
=$4.92 million(Approx).
Hence since NPV is positive;contract should be accepted.
b.Change in value of firm=Increase in value by=$4.92 million(Approx).
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