To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial breakeven level for the project. This type of analysis can be extended to many other types of problems.
a. In Problem 18, assume that the price per carton is $17 and find the project NPV.
What does your answer tell you about your bid price? What do you know about the number of cartons you can sell and still break even? How about your level of costs?
b. Solve Problem 18 again with the price still at $17, but find the quantity of cartons per year that you can supply and still break even.
c. Repeat (b) with a price of $17 and a quantity of 120,000 cartons per year, and find the highest level of fixed costs you could afford and still break even.

  • CreatedMarch 13, 2014
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