To solve the bid price problem presented in the text, we set the project NPV equ
ID: 2647602 • 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
a) Initial Investment = $950,000 + 83,000 (Working Capital)
Calculation of Depriciation: Cost / Life in Years
Depriciation = 950,000 / 5 = $190,000
Calculation of Operating Cash Flow:
PV Factor at 10% for 5 Years= 3.79079
PV Factor at 10% for 5 Years of a single amount = 0.62092
PV of Net Cash Inflow = 410,836 x 3.79079 = $1,557,393
PV of Salvage Value = 78,000 (1-0.34) x 0.62092= $51,480
PV of released Working Capital = 83,000 x 0.62092 = $51,536.36
Total = $1,660,409.36
NPV = PV of Inflow - PV of Outflow
NPV = 1,660,409.36 - 1,033,000 = $627,409.36
b) Calculation of Break Even Point:
BEP = Fixed Cost / Contribution Per Unit
BEP = 333,000 / 6.70 = 49,702 Cartons
c) Contribution at Present Level = $857,600
Less: Fixed Cost + Depriciation = 523,000
Net Profit = $334,600
So, total Fixed Cost can be = $667,600 (333,000 + 334,600)
So, this is the Highest level of Fixed Cost that can be afforded.
Amount($) Per Unit Sales (128,000 x 17.80) 2,278,400 17.80 - Variable Cost (128,000 x 11.10) 1,420,800 11.10 Contribution 857,600 6.70 Less: Fixed Cost 333,000 Less: Depriciation 190,000 Earning Before Tax 334,600 Less: Tax(34%) 113,764 Earning After Tax 220,836 Add: Depriciation 190,000 Net Cash Inflow 410,836Related Questions
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