(Appendix 13A and 13B)Vernal Company Has Been Offered a Seven-Year

question 66

Essay

(Appendix 13A and 13B)Vernal Company has been offered a seven-year contract to supply a part for the military.After careful study,the company has developed the following estimated data relating to the contract:
The equipment above would be in Class 7 with a 15% CCA rate.The company would take the maximum CCA allowable each year.It is not expected that the contract would be extended beyond the initial contract period.The company's after-tax cost of capital is 10%,and the tax rate is 30%.
Required:
Use net present value analysis to determine whether or not the contract should be accepted.(Round all calculations to the nearest dollar. )

---

Definitions:

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets relative to its current liabilities.

Numerator

The top number in a fraction or ratio that represents the part of the whole being considered.

Denominator

In mathematics, the denominator is the bottom part of a fraction that indicates how many equal parts the whole is divided into.

Working Capital Ratio

A liquidity ratio that measures a company's ability to pay off its current liabilities with its current assets.