Question: Please solve all problems. Your factory has been offered a contract to produce a part for a new printer. The contract would last for 3



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 $4.76 million per year. Your upfront setup costs to be ready to produce the part would be $8.14 million. Your discount rate for this contract is 8.3\%. 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.) You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $4,100 and will be posted for one year. You expect that it will generate additional revenue of $492 a month. What is the payback period? The payback period is months. (Round to one decimal place.) 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 $4.97 million per year. Your upfront setup costs to be ready to produce the part would be $8.07 million. Your discount rate for this contract is 8.4%. a. What is the IRR? b. The NPV is \$4.65 million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule? You are considering making a movie. The movie is expected to cost $10.9 million up front and take a year to produce. After that, it is expected to make $4.4 million in the year it is released and $1.9 million for the following four years. What is the payback period of this investment? If you require a payback period of two years, will you make the movie? Does the movie have positive NPV if the cost of capital is 10.5% ? What is the payback period of this investment? The payback period is years. (Round to one decimal place.)
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