Your company has been approached to bid on a contract to sell 5,000 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 Due to technological improvements,beyond that time they will be outdated and no sales will be possible.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 equipmentnecessary for the production will cost $3.4 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net workingcapital of $395,000 to be returned at the end of the project, and the equipment can besold for $325,000 at the end of production. Fixed costs are $595,000 per year, andvariable costs are $85 per unit. In addition to the contract, you feel your company cansell 12,300, 14,600, 19,200, and 11,600 additional units to companies in other countriesover the next four years, respectively, at a price of $180. This price is fixed. The tax rateis 23 percent, and the required return is 10 percent. Additionally, the president of thecompany will undertake the project only if it has an NPV of $100,000. What bid priceshould you set for the contract? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)Bid price$ 165.14

Here, Tax Rate is 23% Required Return is 10% Variable Cost is $85 Required NPV is $100,000

Answered: Your company has been approached to bid…

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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