Afirm wishes to bid on a contract that is expected to yield the following after-tax net cash flows at the end of each year: Year 1$5,000 year2 $8,000, Year3 $9,000, Year4 $8,000, year5 $8,000, year6 $5,000, year7 $3,000,year8 -$1,500. To secure the contract, the firm must spend $30,000 to retool its plant. This retooling will have no salvage value at the end of the 8 years. Comparable investment alternatives are available to the firm that earn 12% compounded annually. The depreciation tax benefit from the retelling is reflected in the net cash flows in the table. A. Compute the projects net present value. B Should the project be adopted? C. What is the meaning of the compute net present value figure?
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