Offered big production contract by new client

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Reference no: EM131185400

After spending $10,000 on client development, you have just been offered a big production contract by a new client. The contract will add $200,000 to your revenues for each of the next 5 years and it will cost you $100,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment id fully depreciated, but could be sold for $50,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment for $30,000 with 5 years straight line depreciation. It will then be worthless. Your production manager earns $80,000 with an assistant who will earn $40,000 per year to help with the expansion. You will have to immediately increase your inventory by $10,000. Your tax rate is 35% and WACC is 15%. What is the NPV and IRR of the project?

Reference no: EM131185400

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