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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 $75,820Thanks
It is the present value of the flows.
Discount (20,000 – (30% x 20,000)) using the 5 year annuity discount factor at 10%,
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Can anyone post the workings here….
Thanks in advanceGood 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.
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Thank u sir
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