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Corporate Finance


Your factory has been offered a contract to produce a part for a new printer. The contract would last for five years and your cash flows from the contract would be $3 million per year. Your upfront setup costs to be ready to produce the part would be $6.5 million. Your cost of capital for this contract is 10%. 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? what is the payback period?