This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: We can solve for the necessary OCF that will give the project a zero NPV. The equation for the NPV of the project is: NPV = 0 = –$50,000 – 30,000 + OCF(PVIFA 10%,3 ) + [($30,000) / 1.10 3 ] Solving for the OCF, we find the OCF that makes the project NPV equal to zero is: 3 57,460.55597 23,105.74018 N I/Y PV PMT 10 OCF = 23,105.74018 Or algebraically: OCF = $57,460.55597 / PVIFA 10%,3 = $23,105.74018 The easiest way to calculate the bid price is the tax shield approach, so: OCF = $23,105.74018= [(P – Costs ](1 – tc) + tcD $23,105.74018= [(P – $25,000 ](1 – 0.35) + 0.35($50,000/3) P = 5.15729336 Bid P = $5.16 Notes: none...
View
Full Document
 Spring '08
 LAPLANTE
 Working Capital, Corporate Finance, Net Present Value, OCF, Initial asset costs

Click to edit the document details