Upfront set up cost = 8.07 million (given)
Cash flows per annum for 3 years = 4.95 million.
Discount Date = 8.3%
Year | Cashflow | Discount Factor | Discounted Cashflow |
0 | -8.07 | 1.0000 | -8.07 |
1 | 4.95 | 1/(1+0.083)1 = 0.9234 | 4.5708 |
2 | 4.95 | 1/(1+0.083)2 = 0.8526 | 4.2203 |
3 | 4.95 | 1/(1+0.083)3= 0.7873 | 3.8971 |
NPV | 4.6182 | ||
a. The NPV of project is $ 4.6182 million.
b. Yes. The contract adds a value ie NPV to the firm's existing value.
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