BUS 295 Lecture Notes - Lecture 22: Net Present Value, Cash Flow, Product Differentiation
Document Summary
We can use npv analysis to determine the lowest price to bid on a project. This is done by setting npv equal to zero and solving for the product price. The army is seeking bids on multiple use digitizing devices (mudds). The contract calls for 4 units per year for 3 years. Labor and material costs are estimated at ,000 per. Production space can be leased for ,000 per year. ,000 in new equipment that is expected to have a salvage value of ,000 after 3 years. Making mudds will require a ,000 increase in net working capital. Assume a 34% tax rate and a required return of 15%. The first guard against forecast risk is to keep in mind that positive npv projects are rare. Positive npv projects are generally considered to be economic rarities. For a project to have a positive npv, it must have some competitive edge be first,be the best, or be the only.
