Guthrie Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support
Question:
Guthrie Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $2.1 million to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $150,000. Your fixed production costs will be $650,000 per year, and your variable production costs should be $9.45 per carton. You also need an initial investment in net working capital of $325,000. If your tax rate is 21 percent and you require an 11 percent return on your investment, what bid price should you submit?
Step by Step Answer:
Corporate Finance
ISBN: 978-1259918940
12th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan