Question content area top

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 $ $5\mathrm{.}00$ million per year. Your upfront setup costs to be ready to produce the part would be $ $8\mathrm{.}00$ million. Your discount rate for this contract is $8\mathrm{.}0\%.$

a$.$ What is the$$ IRR?

b$.$ The NPV is $ $4\mathrm{.}89$million$,$ which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV$$ rule?