Dairy queen corporation has been awarded a contract to supply a key replacement part for its ice machine. The contract would expire in eight years. The projected cash flow resulting from the contract is detailed below: new equipment cost - 300,000 dollars Working capital needed - 100,000 dollars. Net annual cash flows - 85,000 dollars Salvage value of equipment in 8 years 50,000 dollars The corporation's required rate of return is 16%. The working capital would be released for use elsewhere at the end of the project. Required: Determine whether the contract should be accepted using the net present value.
Dairy queen corporation has been awarded a contract to supply a key replacement part for its ice machine. The contract would expire in eight years. The projected cash flow resulting from the contract is detailed below: new equipment cost - 300,000 dollars Working capital needed - 100,000 dollars. Net annual cash flows - 85,000 dollars Salvage value of equipment in 8 years 50,000 dollars The corporation's required rate of return is 16%. The working capital would be released for use elsewhere at the end of the project. Required: Determine whether the contract should be accepted using the net present value.
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Dairy queen corporation has been awarded a contract to supply a key replacement part for its ice machine. The contract would expire in eight years. The projected cash flow resulting from the contract is detailed below:
new equipment cost - 300,000 dollars
Working capital needed - 100,000 dollars.
Net annual cash flows - 85,000 dollars
Salvage value of equipment in 8 years 50,000 dollars
The corporation's required
be released for use elsewhere at the end of the project.
Required: Determine whether the contract should be accepted using the
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