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 $5 million per year. Your upfront setup costs to be ready to produce the part would be $8 million. Your discount rate for this contract is 8%. 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?

Question