Question
A firm needs someone to supply it with 120,000 cartons of screws at a price of $20 per carton to support its manufacturing needs over
A firm needs someone to supply it with 120,000 cartons of screws at a price of $20 per carton to support its manufacturing needs over the next four years. If you want to bid this project, it will cost you $720,000 to install the equipment necessary to start production; youll depreciate this cost straight-line to zero over the projects life. The salvage value at the end of the project is $50,000. Your fixed production costs will be $300,000 per year, and your variable production costs should be $10 per carton. For simplicity, assume no working capital is needed. If your tax rate is 35 percent and you require a 15 percent return on your investment, shall you bid this project?
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