13 Your factory has been offered a contract to produce a par

13

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

$ 5.02$5.02

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

$ 8.03$8.03

million. Your discount rate for this contract is

8.1 %8.1%.

a. What is the? IRR?

b. The NPV is

$ 4.88$4.88

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

a. What is the? IRR?

The IRR is

nothing?%.

? (Round to two decimal? places.)b. The NPV is

$ 4.88$4.88

?million, which is positive so the NPV rule says to accept the project. Does the IRR rule agree with the NPV? rule????(Select from the? drop-down menu.)The IRR rule

Will / Will Not

with the NPV rule?

Solution

a, IRR is the rate at which NPV becomes zero

which means $8.03= 5.02/(1+r)+5.02/(1+r)^2+5.02/(1+r)^3

Which will be approximatel equal to 39.49 %

B IRR also says to accept the project as it is higher than the rate 8.1%