Explain decision making on the basis of the net present

Reference no: EM1313538

Explain decision making on the basis of the net present value criterion

A firm wishes to bid on a contract that is expected to yield the following after tax net cash flows at the end of each year:

YEAR	NET CASH FLOWS
1	5,000
2	8,000
3	9,000
4	8,000
5	8,000
6	5,000
7	3,000
8	-1,500

To secure the contract, the firm must spend $30,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earns 12% compounded annually. The depreciation tax benefit from the retooling is reflected in the net cash flows in the table.

Compute the project\'s net present value
Should the project be adopted?

What is the meaning of the computed net present value figure?

Reference no: EM1313538

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