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university of california Operations And Supply Chain Management Assignment Help - present value method


Question - Vernon company has been offered a 7-year contract to supply a part for the military. After careful
study, the company has developed the following estimated data relating to the contract:
Cost of equipment needed $300,000
Working capital needed $50,000
Annual cash receipts from the delivery of parts,
Less cash operating costs $70,000
Salvage value of equipment at termination of the contract $5,000
It is not expected that the contract would be extended beyond the initial contract period. The
company's discount rate is 10%.
Required:
Use the net present value method to determine if the contract should be accepted. Round all
computations to the nearest dollar. (Please show all your works!)

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