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30. Calculating a Bid Price Another utilization of cash flow analysis is setting the bid price on a project. To calculate the

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Answer #1

Bid price is where NPV=0
We see that NPV=-830000-75000+60000*(1-35%)/1.14^5+75000/1.14^5+((Q*(P-8.50)-f-830000/5)*(1-35%)+830000/5)/14%*(1-1/1.14^5)

1.
NPV=-830000-75000+60000*(1-35%)/1.14^5+75000/1.14^5+((130000*(14-8.50)-210000-830000/5)*(1-35%)+830000/5)/14%*(1-1/1.14^5)=480578.8601

As NPV is positive, bid price will be less than 14
For bid price: NPV=0

Hence,
-830000-75000+60000*(1-35%)/1.14^5+75000/1.14^5+((130000*(P-8.50)-210000-830000/5)*(1-35%)+830000/5)/14%*(1-1/1.14^5)=0
=>P=12.34

Number of cartons needed will be less than 130000

Level of fixed costs will be more than 210000

2.
Breakeven where NPV=0

-830000-75000+60000*(1-35%)/1.14^5+75000/1.14^5+((Q*(14-8.50)-210000-830000/5)*(1-35%)+830000/5)/14%*(1-1/1.14^5)=0
=>Q=90843.44

3.
Breakeven where NPV=0

-830000-75000+60000*(1-35%)/1.14^5+75000/1.14^5+((130000*(14-8.50)-f-830000/5)*(1-35%)+830000/5)/14%*(1-1/1.14^5)=0
=>f=425361.10

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