Solution-Determine whether or not the contract should be

Determine whether or not the contract should be accepted

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Reference no: EM132603490

Vernal Company has been offered a seven-year contract to supply a part for the military. After careful study, the company has developed the following estimated data relating to the contract:

Cost of equipment needed $300,000

Working capital needed to carry inventories $50,000

Annual Net Cash Inflow $90,000

Salvage Value of Equipment $10,000

The equipment above would be in Class 7 with a 15% CCA rate. The company would take the maximum CCA allowable each year. It is not expected that the contract would be extended beyond the initial contract period. The company's after-tax cost of capital is 10%, and the tax rate is 30%.

Required:

Question 1: Use net present value analysis to determine whether or not the contract should be accepted. (Round all calculations to the nearest dollar.)

Reference no: EM132603490

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Determine whether or not the contract should be accepted

Reference no: EM132603490

Reference no: EM132603490

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