Question
Case 2 Assignment Joseph Production Company is bidding an 11-year contract to provide the customer with 12,000 units of product per year. Their accounting department
Case 2 Assignment
Joseph Production Company is bidding an 11-year contract to provide the customer with 12,000 units of product per year. Their accounting department has estimated a labor and material costs of $20 per unit. An initial capital investment of $500,000 is required. The equipment belongs to CCA class 50. Initial net working capital of $20,000 is also needed, as are subsequent investments of $3,000 per year over the life of the contract. The firm must pay factory lease expenses of $75,000 per year. Equipment maintenance expenses are projected to be $15,000 per year. Both lease expenses and maintenance expenses are payable at the end of the year. At the end of the contract, the capital equipment can be sold for $5,000. The firm has a tax rate of 32% and a required return rate of 15%.
Required: Determine the before tax unit price Joseph should bid for this contract. Round the unit price to the nearest dollar. Show all calculations.
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