To solve the bid price problem presented in the text, we set the project NPV equ
ID: 2647409 • Letter: T
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To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems.
To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems.
Dahlia Enterprises needs someone to supply it with 128,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and youExplanation / Answer
Initial Inv = 950000 + 83000 = 1,033,000
Annual depreciation = (950,000 - 78,000) / 5 = 174,400
Annaul production cost = FC + VC = 330,000 + 11.10 x 128,000 = 1,750,800
(a) if price = 17.80/carton, annual revenue (cash inflow) = 17.80 x 128,000 = 2,278,400
At year-5, the salvage value and NWC both are recovered, so additional cash inflow at yr 5 = 78,000 + 83,000 = 161,000
Every year,
CFAT = Post-tax cash flow + Depreciation added back = (1 - 0.34) x (2,278,400 - 1,750,800 - 174,400) + 174,400 = 407,512
6,02,671
(b) Unit contribution = unit price - VC = 17.90 - 11.10 = 6.8
So BEP = FC / unti contribution = 333,000 / 6.8 = 48,971 units
YR CASH FLOW ($) Discount Factor @10% PV 0 -10,33,000 1.0000 -10,33,000 1 4,07,512 0.9091 3,70,465 2 4,07,512 0.8264 3,36,787 3 4,07,512 0.7513 3,06,170 4 4,07,512 0.6830 2,78,336 5 4,07,512 0.6209 2,53,033 5 1,61,000 0.5645 90,880 NPV6,02,671
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