You are submitting a bid to supply windshields to Ford Motor Company to be used on Ford F150 trucks. The contract will be for 3 years, and involve 750,000 truck windshields per year. You understand that other auto glass companies are submitting bids, so this is a competitive process: put in a bid that is too high per windshield, and you will likely lose the business to another auto glass company who puts in a lower bid. At the same time, you do not want to put in a bid per windshield that is so low that it becomes a negative NPV project for your firm. As a result, you decide to put in a bid price per windshield that makes the NPV of this project exactly equal to $0. Your required return is 9% per year. You have completed steps 1 and 2 of this process, described in the last two slides of the Chapter 11 in-class lecture notes, and have determined that the PV of the OCF of this project needs to be $25,562,279.18. Your variable cost per windshield is $87.25, your fixed costs are $4.75 million per year, you will have $500,000 per year in depreciation expense, and your tax rate is 21%. What will be the bid price (per windshield) that you submit to Ford? Solve this by completing steps 3 and 4 in the process outlined in the notes.
You are submitting a bid to supply windshields to Ford Motor Company to be used on Ford F150 trucks. The contract will be for 3 years, and involve 750,000 truck windshields per year. You understand that other auto glass companies are submitting bids, so this is a competitive process: put in a bid that is too high per windshield, and you will likely lose the business to another auto glass company who puts in a lower bid. At the same time, you do not want to put in a bid per windshield that is so low that it becomes a negative NPV project for your firm. As a result, you decide to put in a bid price per windshield that makes the NPV of this project exactly equal to $0.
Your required return is 9% per year. You have completed steps 1 and 2 of this process, described in the last two slides of the Chapter 11 in-class lecture notes, and have determined that the PV of the OCF of this project needs to be $25,562,279.18.
Your variable cost per windshield is $87.25, your fixed costs are $4.75 million per year, you will have $500,000 per year in
What will be the bid price (per windshield) that you submit to Ford? Solve this by completing steps 3 and 4 in the process outlined in the notes.
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