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MCQ :a company is considering in investing in 2 yr project. machine set up cost will be 125k payable immediately . workingcapital of 4000 is required at the begning of the contract and wil be released at the end.
Given cost of cap 10%,what is minimum acceptable contract price to be recieved at the end of project ?i want to ask this qustn is for EAC cost ? y they divided NPV by.826 …in EAC it should be annuity factr of 2 yrs which is 1.736
This is nothing to do with equivalent annual costs.
If X is the price receive at the end of the contract, then the minimum price would be whatever gives an NPV for zero.
In two years time there is a receipt of (X + 4000).
The present value of this is (X + 4000) x 0.826.
For an NPV of zero, (X + 4000) x 0.826 = (125000 + 4000)So X + 4000 = 156174
So X = 152174
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