Martin Enterprises needs someone to supply it with 117,000 cartons of machine screwsper year to support its manufacturing needs over the next five years, and you've decidedto bid on the contract. It will cost you $780,000 to install the equipment necessary tostart production; you'll depreciate this cost straight-line to zero over the project's life. Youestimate that, in five years, this equipment can be salvaged for $128,000. Your fixedproduction costs will be $405,000 per year, and your variable production costs shouldbe $10.00 per carton. You also need an initial investment in net working capital of$67,000. If your tax rate is 23 percent and you require a return of 11 percent on yourinvestment, what bid price should you submit? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.)Bid price

NPV is most used capital budgeting method based time value of money and is the financial break even…

Answered: Martin Enterprises needs someone to…

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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oJo sportswear company needs someone to supply it with 4,000 tons of cotton cloth per year to support its manufacturing needs over the next six years, and you’ve decided to bid on the contract. It will cost you $16 million to install the equipment necessary to start production; you’ll depreciate this cost straight-line to $4 million over the project’s life. The market value of the retired machine is $5 million. Your production costs will be $3.2 million per year. You also need an initial investment in net working capital of $1.5 million, which will be fully recovered at the end of the project. If your tax rate is 30 percent and you require a 10 percent return on your investment, what is the lowest bid price per ton you should submit? A. $2,017.49/ton B. $2,451.33/ton C. $1,951.33/ton D. $1,733.77/ton
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