Radhubhai Martin Enterprises needs someone to supply it with 142,000 cartons of machine screws per year to support its manufacturing needsover the next five years, and you've decided to bid on the contract. It will cost you $1,820,000 to install the equipment necessary tostart production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipmentcan be salvaged for $152,000. Your fixed production costs will be $267,000 per year, and your variable production costs should be$8.70 per carton. You also need an initial investment in net working capital of $132,000. If your tax rate is 22 percent and you require areturn of 12 percent on your investment, what bid price per carton should you submit?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.Bid price

Determining Bid Price for Machine Screws ContractChallenge: Martin Enterprises desires 142,000…

Answered: Martin Enterprises needs someone to…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
Martin Enterprises needs someone to supply it with 141,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1,810,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $151,000. Your fixed production costs will be $266,000 per year, and your variable production costs should be $8.60 per carton. You also need an initial investment in net working capital of $131,000. If your tax rate is 21 percent and you require a return of 13 percent on your investment, what bid price per carton should you submit? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Martin Enterprises needs someone to supply it with 141,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $ 1,810,000 to install the equipment necessary to start production; you'll depreciate this cost straight - line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $151,000. Your fixed production costs will be $266, 000 per year, and your variable production costs should be $8.60 per carton. You also need an initial investment in net working capital of $131,000. If your tax rate is 21 percent and you require a return of 13 percent on your investment, what bid price per carton should you submit?
Martin Enterprises needs someone to supply it with 110,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $940,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $75,000. Your fixed production costs will be $850,000 per year, and your variable production costs should be $21.43 per carton. You also need an initial investment in net working capital of $90,000. If your tax rate is 21 percent and you require a return of 12 percent on your investment, what bid price should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price
Martin Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,850,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $140,000. Your fixed production costs will be $625,000 per year, and your variable production costs should be $8.87 per carton. You also need an initial investment in net working capital of $295,000. If your tax rate is 21 percent and you require a 10 percent return on your investment, what bid price per carton should you submit?
Martin Enterprises needs someone to supply it with 175,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $2,300,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $185,000. Your fixed production costs will be $670,000 per year, and your variable production costs should be $9.23 per carton. You also need an initial investment in net working capital of $340,000. If your tax rate is 25 percent and you require a 11 percent return on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price
Martin Enterprises needs someone to supply it with 156,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. it will cost you $1,960,000 to install the equipment necessary to start production, you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $166,000 Your fixed production costs will be $281,000 per year, and your variable production costs should be $1010 per carton. You also need an initial investment in net working capital of $146,000. If your tax rate is 21 percent and you require a return of 10 percent on your investment, what bid price per carton should you submit? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. Bid price 15 84
Martin Enterprises needs someone to supply it with 110,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $745,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $93,000. Your fixed production costs will be $335,000 per year, and your variable production costs should be $9.65 per carton. You also need an initial investment in net working capital of $60,000. If your tax rate is 21 percent and you require a return of 9 percent on your investment, what bid price should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.).
Alson Enterprises needs someone to supply it with 185,000 cartons of machine screw per year to support its manufacturing needs over the next five years, and you have decided to bid on the contract. It will cost you $940,000 to install the equipment necessary to start production; you will depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $70,000. Your fixed cost production costs will be $305,000 per year, and your variable production costs should be $9.25 per carton. You also need an initial investment in net working capital of $75,000. If your tax rate is 35% and you require a 12% return on your investment, what bid price should submit?

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