Written Case Analysis Lynde Company I. Background: II.

II. Lynde Company has been offered an 8-year contract to provide a key replacement part for the Armys main attack helicopter. The companys required rate of return is 16 percent. Projected cash flows are presented in the case for evaluation.

Problem Statement: Should the company accept the contract to provide a key replacement part for the Armys main attack helicopter?

III.

Objectives: To evaluate the acceptability of the contract using NPet present Value

IV.

Answer to the Requirement of the Case: Net Present Value= Present Value of Cash Inflows Present Value of Cash Outflows

Present Value of Cash Inflows: PVF PV Net Annual Cash Inflows 85,000 x 4.34359=369,205.15 Salvage Value of Equipment 50,000 x .30503= 15,251.50 Working Capital Released 100,000 x .30503= 30,503.00 414,959.65 Less: Present Value of Cash Outflows Cost of New Equipment 300,000 Working Capital Needed 100,000 Net Present Value V. Conclusion and Recommendation Based on Net Present Value computation, the offered contract is acceptable because it resulted to a positive NPV of $14,959.65. The present value of cash inflows ($414,959.65) is greater than the present value of cash outflows ($400,000.00). However, the final decision should be made after considering other factors like economic decisions, companys growth policies, risk evaluation of the project and availability of capital resources.

400,000.00 $ 14,959.65