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Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle
Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that is worth $1, 200,000 after tax. The land can be sold for $1, 500,000 after taxes in five years. You will need to install $3.8 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life. Assume there is no salvage value for the equipment at the end of the project. For simplicity, assume no changes in net working capital. Your production costs are 0.5 cents per stamp, and you have fixed costs of $900,000 per year If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract? (Please round the final answers to the fourth decimal in dollar. Final answers other than this format may result in a point loss.) (For a discount rate of 12%, the annuity factors for n = 2, 3, 4, 5 are 1.690, 2.402, 3.037 and 3.605, respectively.)
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