Vernon Company Has Been Offered a Seven-Year Contract to Supply

Vernon Company has been offered a seven-year contract to supply a part for the military.After careful study,the company has estimated the following data relating to the contract:

$\begin{array}{lccc}\text { Cost of Equipment Needed } & \$ 300,000 \\\text { Working Capital Needed } & \$ 50,000 \\\text { Annual Cash Receipts from the Delivery of Parts, } & \\\quad \text { Less Cash Operating Costs } & \$ 70,000 \\\text { Salvage Value of Equipment at Termination of the } & \$ 5,000 \\\text { Contract } &\end{array}$

It is not expected that the contract would be extended beyond the initial contract period. The company's discount rate is 10%. (Ignore income taxes in this problem.)

Required:

Use the net present value method to determine if the contract should be accepted. Round all computations to the nearest dollar.