Question :

During your meeting with the FD, she asked you to address the following questions and

communicate your responses to her in an email.

a) Using the maximum tender price of 13.5 million, calculate the net present value (NPV) of the proposed contract for BB as at 1 January 2022, presenting the FD with all supporting calculations.

Recommend whether or not the new contract would be financially advantageous to BB at this tender price. (9 marks)

b) To assist BB when assessing pricing for the new contract, calculate the minimum price at which BB should tender for the contract. (5 marks)

c) Using the NPV calculation in (a) calculate the approximate internal rate of return (IRR) of the contract for BB. Clearly show the workings to reach this estimate. (8 marks)

d) Provide the FD with a comment on each of the calculations provided in (a), (b) and (c). (3 marks)