Your company has been approached to bid on a contract to sell 19,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $4,000,000 and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $140,000 to be returned at the end of the project, and the equipment can be sold for $260,000 at the end of production. Fixed costs are $795,000 per year and variable costs are $43 per unit. In addition to the contract, you feel your company can sell 4,600, 12,200, 14,200, and 7,500 additional units to companies in other countries over the next four years, respectively, at a price of $140. This price is fixed. The tax rate is 23 percent, and the required return is 12 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $150,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price

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
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Your company has been approached to bid on a contract to sell 19,000 voice recognition
(VR) computer keyboards per year for four years. Due to technological improvements,
beyond that time they will be outdated and no sales will be possible. The equipment
necessary for the production will cost $4,000,000 and will be depreciated on a straight-
line basis to a zero salvage value. Production will require an investment in net working
capital of $140,000 to be returned at the end of the project, and the equipment can be
sold for $260,000 at the end of production. Fixed costs are $795,000 per year and
variable costs are $43 per unit. In addition to the contract, you feel your company can
sell 4,600, 12,200, 14,200, and 7,500 additional units to companies in other countries
over the next four years, respectively, at a price of $140. This price is fixed. The tax rate
is 23 percent, and the required return is 12 percent. Additionally, the president of the
company will undertake the project only if it has an NPV of $150,000. What bid price
should you set for the contract? (Do not round intermediate calculations and round
your answer to 2 decimal places, e.g., 32.16.)
Bid price
Transcribed Image Text:Your company has been approached to bid on a contract to sell 19,000 voice recognition (VR) computer keyboards per year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $4,000,000 and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $140,000 to be returned at the end of the project, and the equipment can be sold for $260,000 at the end of production. Fixed costs are $795,000 per year and variable costs are $43 per unit. In addition to the contract, you feel your company can sell 4,600, 12,200, 14,200, and 7,500 additional units to companies in other countries over the next four years, respectively, at a price of $140. This price is fixed. The tax rate is 23 percent, and the required return is 12 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $150,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price
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