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
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5y ago#1The 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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