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 $5.00 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 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 $ million. (Round to two decimal places.) What should you do? (Select the best choice below.) O A. The NPV rule says that you should accept the contract because the NPV>0. O B. The NPV rule says that you should not accept the contract because the NPV>0. O C. The NPV rule says that you should not accept the contract because the NPV<0. OD. The NPV rule says that you should accept the contract because the NPV <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 $ million. (Round to two decimal places.)

Other 2 options c. Since the NPV is​ negative, the correct decision is to accept the upfront retainer.

D. None of the above.

ANSWER ASAP please

Answer 1

Calculate the NPV as follows:

А 9 Year 10 11 в с F Particulars Amount PVF @ 8% PV of cash flows O Initial investment -8 1 Cash flows 5 0.925925926 4.62962963 2 Cash flows 5 0.85733882 4.286694102] 3 Cash flows 5 0.793832241 3.969161205 NPV $4.89 Million | 12 13 14 15 Option 16 Part b The NPV rule says that you should accept the contract because the NPV >0. Value added to the firm $4.89 million

Formulas:

D А 9 Year 10 O 11 1 12 2 13 3 14 в Particulars Initial investment Cash flows Cash flows Cash flows NPV E PV of cash flows =C10*D10 =C11*D11 =C12*D12 =C13*D13 Amount PVF @ 8% =1/(1+8%)^A10 = 1/(1+8%)^A11 =1/(1+8%)^A12 =5 =1/(1+8%)^A13 =SUM(E10:E13) -5 a Million 15 Option 16 Part b The NPV rule says that you should accept the contract because the NPV > 0. | Value added to the firm =D14 million