Consider a project to supply 70 units of a product for the next five years. As the center of operations, you can use a building you own that cost $380 five years ago. Selling the building today would give you $330 after tax. If you start the project, you will not be able to sell the building until the project is over. You estimate that selling the building in 5 years will give you $800 after tax. You will also need to install $2,000 in new equipment at the beginning of the project; the equipment will be depreciated straight-line to zero over the project's five-year life. The equipment can be sold for $1,500 at the end of the project. You will also need $35 in initial net working capital for the project, and an additional investment of $33 annually. All net working capital will be recovered when the project ends. Your variable costs are $28 per unit, and you have fixed costs of $560 per year. Your tax rate is 35% and your required return on this project is 10%. If you were to submit a bid in a procurement auction on this project, what bid price should you submit? O $40.25 O $37.33 O $39.20 O $40.91 $41.33
Consider a project to supply 70 units of a product for the next five years. As the center of operations, you can use a building you own that cost $380 five years ago. Selling the building today would give you $330 after tax. If you start the project, you will not be able to sell the building until the project is over. You estimate that selling the building in 5 years will give you $800 after tax. You will also need to install $2,000 in new equipment at the beginning of the project; the equipment will be depreciated straight-line to zero over the project's five-year life. The equipment can be sold for $1,500 at the end of the project. You will also need $35 in initial net working capital for the project, and an additional investment of $33 annually. All net working capital will be recovered when the project ends. Your variable costs are $28 per unit, and you have fixed costs of $560 per year. Your tax rate is 35% and your required return on this project is 10%. If you were to submit a bid in a procurement auction on this project, what bid price should you submit? O $40.25 O $37.33 O $39.20 O $40.91 $41.33
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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Transcribed Image Text:Consider a project to supply 70 units of a product for the next five years. As the center of operations,
you can use a building you own that cost $380 five years ago. Selling the building today would give
you $330 after tax. If you start the project, you will not be able to sell the building until the project is
over. You estimate that selling the building in 5 years will give you $800 after tax. You will also need
to install $2,000 in new equipment at the beginning of the project; the equipment will be
depreciated straight-line to zero over the project's five-year life. The equipment can be sold for
$1,500 at the end of the project. You will also need $35 in initial net working capital for the project,
and an additional investment of $33 annually. All net working capital will be recovered when the
project ends. Your variable costs are $28 per unit, and you have fixed costs of $560 per year. Your tax
rate is 35% and your required return on this project is 10%. If you were to submit a bid in a
procurement auction on this project, what bid price should you submit?
O $40.25
O $37.33
$39.20
O $40.91
O $41.33
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