1. You want to bid on a project to supply 80 million postage stamps to Canada Post for the next five years. You will need to install $3.1 million in new manufacturing plant and equipment to actually produce the stamps, which will be depreciated at a 20% CCA rate. The equipment can be sold for a $600,000 at the end of the project. You will also need an initial $600,000 in NWC plus an additional investment of $50,000 per year for the next 4 years thereafter, all of which will be recovered at the end of the project. Your production costs are 0.75 cents per stamp and you have fixed costs of $800,000 per year. If your tax rate is 34% and your required rate of return is 15%, what bid price per stamp should you submit?

2. Your Enterprise needs someone to supply it with 175,000 cartons of machine screws per year to support its manufacturing needs over the next five years. It will cost you $570,000 to purchase and install the equipment necessary to start production. The equipment will be depreciated at a 30% CCA rate and it should have a salvage value of $77,000 at the end of the five-year contract. Your fixed production costs will be $182,000 per year and your variable production costs are estimated at $6.25 per carton. You also need an initial net working capital of $75,000, which will be recovered at the end of the project. If your tax rate is 37% and you want a 20% return on your investment, what is an appropriate bid price?