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Part 1

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

$4.96

million per year. Your upfront setup costs to be ready to produce the part would be

$7.95

million. Your discount rate for this contract is

7.9%.

a. What is the IRR?

b. The NPV is

$4.86

million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV rule?