Consider a project to supply 102 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idleparcel of land available that cost $1,715,000 five years ago; if the land were sold today, it would net you $1,790,000 aftertax. The landcan be sold for $1,750,000 after taxes in five years. You will need to install $5.45 million in new manufacturing plant and equipment toactually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life. Theequipment can be sold for $655,000 at the end of the project. You will also need $585,000 in initial net working capital for the project,and an additional investment of $52,000 in every year thereafter. Your production costs are .50 cents per stamp, and you have fixedcosts of $1,070,000 per year. If your tax rate is 23 percent and your required return on this project is 8 percent, what bid price shouldyou submit on the contract?Note: Do not round intermediate calculations and round your answer to 5 decimal places, e.g., 32.16161.Bid price$0.52769

We can explain further as follows;1. Project Overview:The project involves supplying 102 million…

Answered: Consider a project to supply 102…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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