Adequate information: Salvage value = $150,000 Cost of equipment (C) = $2,100,000 Fixed cost (FC) = $650,000 Net working capital (NWC) = $325,000 Variable cost per unit (V) = $9.45 Useful life of equipment = 5 years Number of cartons (Q) = 145,000 Tax rate (T) = 21% or 0.21 Required rate of return (r) = 11% or 0.11 To compute: Bid price of the contract Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow . Bid price refers to the price which the investors are willing to pay for the purchase of security, commodity, or contract.

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Chapter 6, Problem 34QAP

Summary Introduction

Adequate information:

Salvage value = $150,000

Cost of equipment (C) = $2,100,000

Fixed cost (FC) = $650,000

Net working capital (NWC) = $325,000

Variable cost per unit (V) = $9.45

Useful life of equipment = 5 years

Number of cartons (Q) = 145,000

Tax rate (T) = 21% or 0.21

Required rate of return (r) = 11% or 0.11

To compute: Bid price of the contract

Introduction: Net present value is defined as the summation of the present value of cash inflows in each period minus the summation of the present value of cash outflow.

Bid price refers to the price which the investors are willing to pay for the purchase of security, commodity, or contract.

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