ABC Inc. tries to make a bid for a new project and if the company wins the bid, then the company can sell 5 million units of the product per year for the next eight years.The managment team of ABC Inc. is discussing what the minimum bid price per unit should be such that the NPV is equal to zero.

ABC Inc. has an idle parcel of land available that cost $25 million ten years ago. If the company wins the bid, then new plants will be built on the land for production. If the land were sold today, the after-tax market value would be $15 million. The land can be sold for $18 million after-tax at the end of the project.

The new project requires $25 million investment in new manufacturing equipment to actually produce the products. This equipment will be depreciated straight-line to $1 million over the projects eight-year life. The equipment can be sold for $5 million pre-tax at the end of the project.

The project also requires $3 million investment in the net working capital, and an additional investment of $0.5 million in every year thereafter. You can recover all the money tied up in the net working capital account at the end of the project.

The average tax rate is 25%, the marginal tax rate is 21%, and the discount rate is 12%.

At the minimum bid price per unit, what is the operating cash flow (OCF) per year?

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