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Calculating NPV and advising on accepting or rejecting a new contract

List of relevant costs

Tech Help Inc. has been offered a new contract. The firm needs to determine whether the contract will be profitable. The new contract will generate 800 billing hours at $125 per year for 5 years. The variable costs, labour will be $32 an hour (including fringe benefits). The fixed costs include 3 vehicle for the employees to service customers at their locations will be $500 per month per car. Other fixed costs will remain the same for the company as a whole but will be allocated to this project at $1,500 for the
receptionist and office supplies per month. The company tax rate is 28%. If Tech Help goes ahead with this project, it will lose 2,000 in net income per month. Calculate the NPV using a discount rate of 10% in the excel document titled “Case 2 - Week 12-13 Response template ”. Show the yearly incremental cash flows for this project and then calculate the NPV by discounting the net yearly cash flows. Advise your firm whether it should accept or reject this contract.
1. List all relevant costs.
2. Calculate the incremental cash inflows (the revenue the project will generate)
3. Calculate the total yearly costs.
4. Calculate the yearly incremental cash flows.
5. Calculate the NPV of the project.
6. Accept or reject the project.

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