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Your factory has been offered a contract to produce a part

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Your factory has been offered a contract to produce a part for a new printer. The contract would last for three years and your cash flows from the contract would be $5 million per year. Your upfront setup costs to be ready to produce the part would be $8 million. Your cost of capital for this contract is 8%.

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?

Reference no: EM13571702

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