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Hello John,
A company is considering investing in a two year project. Machine set up costs will be $125,000 payable immediately. Working capital of $4000 is required at the beginning of the contract and will be released at the end.
Given a cost of capital of 10%, what is the minimum acceptable contract price to be received at the end of the contract?
1. The answer $152,174
2. Could you explain what does “minimum acceptable contract price” mean here? Is it the NPV of the project?Thanks
The question says that the contract price is received at the end of the contract (which is in 2 years time).
The minimum acceptable contract price is the amount (when discounted for 2 years) results in an NPV of zero (obviously when the other flows are taken into account).
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