Martin Enterprises needs someone to supply it with 156,000 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 $1,960,000 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 $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 areturn 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 price15 84

Npv is also known as Net present Value. It is a capital budgeting techniques which helps in decision…

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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Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,810,000 and will last for 4 years. Variable costs are 37 percent of sales, and fixed costs are $179,000 per year. Machine B costs $4,730,000 and will last for 8 years. Variable costs for this machine are 32 percent of sales and fixed costs are $117,000 per year. The sales for each machine will be $9.46 million per year. The required return is 10 percent and the tax rate is 21 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? EAC If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? EAC
Martin Enterprises needs someone to supply it with 117,000 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 $780,000 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 $128,000. Your fixed production costs will be $405,000 per year, and your variable production costs should be $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 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
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
A new furnace for your small factory is being installed right now, will cost $39,000, and will be completed in one year. At that point, it will require ongoing maintenance expenditures of $1,100 a year. But it is far more fuel-efficient than your old furnace and will reduce your consumption of heating oil by 3,600 gallons per year. Heating oil this year costs $2 a gallon; the price per gallon is expected to increase by $0.50 a year for the next 3 years and then to stabilize for the foreseeable future. The furnace will last for 20 years from initial use, at which point it will need to be replaced and will have no salvage value. (Specifically, the firm pays for the furnace at time 0, and then reaps higher net cash flows from that investment at the end of years 1 – 20.). The discount rate is 10%. a. What is the net present value of the investment in the furnace? (Do not round intermediate calculations. Round your answer to the nearest whole dollar.) b. What is the IRR? (Do not round…
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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?
Komoka Enterprises needs someone to supply it with 72,000 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 $950,000 to install the equipment necessary to start production. The equipment will be depreciated at 30% (Class 10), and you estimate that it can be salvaged for $88,000 at the end of the five-year contract. Your fixed production costs will be $320,000 per year, and your variable production costs should be $15.50 per carton. You also need an initial net working capital of $150,000. If your tax rate is 35% and you require a 14% return on your investment, what bid price should you submit? Keep intermediate results to at least 5 decimal places, Minimum Bid price to 2 decimal places is $ LE
After spending $9,600 on client-development, you have just been offered a big production contract by a new client. The contract will add $196,000 to your revenues for each of the next five years and it will cost you $96,000 per year to make the additional product. You will have to use some existing equipment and buy new equipment as well. The existing equipment is fully depreciated, but could be sold for $45,000 now. If you use it in the project, it will be worthless at the end of the project. You will buy new equipment valued at $29,000 and use the 5-year MACRS schedule to depreciate it. It will be worthless at the end of the project. Your current production manager earns $79,000 per year. Since she is busy with ongoing projects, you are planning to hire an assistant at$38,000 per year to help with the expansion. You will have to immediately increase your inventory from $20,000 to $30,000. It will return to $20,000 at the end of the project is 21% and your discount rate is 14.7%. What…
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Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $ 3,210,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $350,000 per year. Machine B costs $5,455,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $240,000 per year. The sales for each machine will be $12.4 million per year. The required return is 9 percent, and the tax rate is 24 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine.
The equivalent annual worth of the process currently used in manufacturing motion controllers is AW = $-62,000 per year. A replacement process is under consideration that will have a first cost of $64,000 and an operating cost of $38,000 per year for the next 3 years. Three different engineers have given their opinion about what the salvage value of the new process will be 3 years from now as follows: $10,000, $13,000, and $18,000. Is the decision to replace the process sensitive to the salvage value estimates at the company’s MARR of 15% per year?
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.).

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