A fi rm wishes to bid on a contract that is expected to yield the following aft er-tax net cash

fl ows at the end of each year:(Attached)

To secure the contract, the fi rm must spend $30,000 to retool its plant. Th is retooling will

have no salvage value at the end of the eight years. Comparable investment alternatives

are available to the fi rm that earn 12 percent compounded annually. Th e depreciation tax

benefi t from the retooling is refl ected in the net cash fl ows in the table.

Compute the project’s net present value.

b. Should the project be adopted?

c. What is the meaning of the computed net present value fi gure?

fl ows at the end of each year:(Attached)

To secure the contract, the fi rm must spend $30,000 to retool its plant. Th is retooling will

have no salvage value at the end of the eight years. Comparable investment alternatives

are available to the fi rm that earn 12 percent compounded annually. Th e depreciation tax

benefi t from the retooling is refl ected in the net cash fl ows in the table.

Compute the project’s net present value.

b. Should the project be adopted?

c. What is the meaning of the computed net present value fi gure?

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