By outbidding its competitors, Turbo Image Processing (TIP), a defense contractor, has received a contract worth $7,300,000 to build navy flight simulators for U.S. Navy pilot training over two years. For some defense contracts, the U.S. government makes an advance payment when the contract is signed, but in this case, the government will make two progressive payments: $4,300,000 at the end of the first year and the $3.000,000 balance at the end of the second year. The expected
In normal situations, TIP would not even consider a marginal project such as this one in the first place. However, hoping that TIP can establish itself as a technology leader in the field. management felt that it was worth outbidding its competitors by providing the lowest bid. Financially, what is the economic worth of outbidding the competitors for this project?
(a) Compute the values of the i*s for this project.
(b) Make an accept-or-reject decision on the basis of the results of part (a). Assume that the contractor's MARR is 15%.
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