Question
1. A Finnish company is considering participation in a tender administered by Estonian Defence Forces. According to the tender, the winner is expected to deliver
1. A Finnish company is considering participation in a tender administered by Estonian Defence Forces. According to the tender, the winner is expected to deliver 15 000 pairs of special boots each year for the next five years. It is estimated that the company should invest 1.8 m EUR into special machinery at the start of the project to fulfil its obligations. Variable costs per boots are estimated as 40 EUR and annual overhead expenses attributable to the project are 320 000 EUR. The company uses straight-line depreciation and there is no salvage value associated with the investment. Company tax rate is 20% and the cost of capital is estimated as 15%. \ a) Find the accounting and financial break-even price per pair?
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