tender price section A question — OpenTuition Forums

SStefano11y ago

Dear Sir, question 8 of section A of mock exam 1 on BPP revision book npv value of cost of new work provided over five years $53,074 cost of capital 10% payment received at the end of the project tax rate 30% minimum tender price to include on their project is (according to the book) $122,109 that is 53,074*(1.1)to power of 5= 85,476 divided by 1-0.3 because that would be the price before tax is paid on it by the company could you please explain why shall I multiply npv time cost of capital to the power of 5? the discount rate already accounts for the time value of the money so I would expect a minimum pprice similar to the npv instead thank you

John MoffatTutor11y ago#1

You have addressed this to 'Dear Sir' which I assume is me. If you want me to answer questions, then you should ask in the Ask the Tutor Forum - this forum is for students to help each other. Since the price is to be paid at the end of the project - which is in 5 years time - we need the PV of the payments to be equal to the PV of the costs. If the cost quoted for the project is X, then the PV of it is X divided by 1.1^5. So since we know what PV we need, then X must be the PV of the costs multiplied by 1.1^5

SStefano11y ago#2

thank you :)))

John MoffatTutor11y ago#3

You are welcome :-)

Sign into reply to this topic.