Another utilization of cash flow analysis is setting the bid price on a project.
ID: 2622136 • Letter: A
Question
Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 157,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you
Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project. Guthrie Enterprises needs someone to supply it with 157,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you
Explanation / Answer
The answer is: 14.81
Explanation:
To find the bid price, we need to calculate all other cash flows for the project, and then solve for the bid price. The aftertax salvage value of the equipment is:
Now we can solve for the necessary OCF that will give the project a zero NPV. The equation for the NPV of the project is:
To find the bid price, we need to calculate all other cash flows for the project, and then solve for the bid price. The aftertax salvage value of the equipment is: