4. Suppose we can buy the truck platforms for $9,000 each. The facilities we need can be leased for $25,000 per year. The labor and material cost to do the modification works out to be about $5,000 per truck. Total cost per year will thus be $25,000 + 5 (9,000 + 5,000) = $95,000. We will need to invest $70,000 in new equipment. This equipment will be depreciated straight-line to a zero-salvage value over the four years. It will be worth about $4,000 at the end of that time. We will also need to invest $40,000 in raw materials inventory and other working capital items. The relevant tax rate is 21 percent. What price per truck should we bid if we require a 20 percent return on our investment?

Sales
Depreciation
Fixed Cost
Variable Cost
EBIT
Taxes (21%)
Net Income

EBIT
+Depreciation
-Taxes (21%)
OCF

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	0	1	2	3	4
OCF
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