Sheridan Shovel Corporation has decided to bid for a contract to supply shovels to the Honduran Army. The Honduran Army intends tobuy 1,000 shovels per year for the next 3 years. To supply these shovels, Sheridan will have to acquire manufacturing equipment at acost of $160,000. This equipment will be depreciated on a straight-line basis over its five-year lifetime. At the end of the third year,Sheridan can sell the equipment for exactly its book value ($64,000). Additional fixed costs will be $40,000 per year, and variable costswill be $3 per shovel. An additional investment of $24,000 in net working capital will be required when the project is initiated. Thisinvestment will be recovered at the end of the third year. Sheridan Shovel has a 27 percent marginal tax rate and a 15 percent requiredrate of return on the project. What is the lowest possible per shovel price that Sheridan can offer for the contract and still create valuefor its stockholders? (Round Round CF Opns answer to O decimal places, e.g. 5,275 and final answer to 2 decimal places, e.g. 15.25.)Shovel price$

The point at which NPV is zero and present value of cash flow is equal to initial investment of…

Answered: Sheridan Shovel Corporation has decided…

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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