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. O D. 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.)
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. O D. 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.)
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 8P
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Question
21. 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. The NPV of the project is $____million. (Round to two decimal places.)
What should you do? (Select the best choice below.)
b. If you take the contract, the value added to the firm will be $____million. (Round to two decimal places.)
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
$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.
O D. 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.)
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