Valero Energy Corp. is considering purchasing a refinery to increase capacity. The refinery is being sold though a sealed bid auction - meaning potential buyers must place their one best bid in a sealed envelope. The seller will open all the sealed envelops at a preset time and then commit to selling to the highest bidder. You decide the best technique to arrive at a bid amount is to calculate the NPV and offer that amount. Further analysis reveals that the refinery will generate positive cash flows of $75,000 at the end of each year for 20 years. Valero's WACC is 12.00% and the project will have an IRR of 14.00%. What bid price should you recommend?

Answer rating: 100% (QA)

To determine the bid price for the refinery acquisition we can use the Net Present Value NPV approac... View the full answer