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Minimum Tender Price

Forums › ACCA Forums › ACCA FM Financial Management Forums › Minimum Tender Price

  • This topic has 5 replies, 3 voices, and was last updated 10 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • November 8, 2014 at 8:57 pm #208489
    Accountaholic
    Member
    • Topics: 98
    • Replies: 67
    • ☆☆

    Work will generate costs of $20000 pa each year for 5 years. TW co has a WACC of 10% and pays corporation tax at the rate of 30%

    What is the minimum tender price they should include in their proposal receivable at the end of the project that will leave Share holder wealth unaffected?

    A $122,109
    B $85,476
    C $53,074
    D $75,820

    Thanks

    November 9, 2014 at 12:49 pm #208568
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    It is the present value of the flows.

    Discount (20,000 – (30% x 20,000)) using the 5 year annuity discount factor at 10%,

    November 13, 2014 at 1:34 am #209504
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 3
    • ☆

    Can anyone post the workings here….
    Thanks in advance

    November 13, 2014 at 9:48 am #209555
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Good heavens – what extra workings do you need???

    The net inflow is 14,000 per annum (as above).

    The 5 year annuity factor at 10% you can read from the tables.

    Then you simply multiply them together to get the present value.

    November 13, 2014 at 9:59 am #209567
    Anonymous
    Inactive
    • Topics: 0
    • Replies: 3
    • ☆

    Thank u sir

    November 13, 2014 at 10:15 am #209578
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
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