Ellesmere Limited is considering bidding on a contract to supply 10 subway cars each year to the City of Toronto for the next 15 years. Use the following information to determine the bid price per subway car.

1. To build these cars the company has to upgrade the existing plant and equipment. Existing P& E has a current market value of $5,000,000 and an expected salvage value of $1,000,000 after 10 years. Upgrade will cost $10,000,000, and after 15 years, plant and equipment could be salvaged for $2,000,000.

2. If the company decided to build the subway cars then it will lose $1,200,000 per year of after-tax operating income over a 10-year period from the current operations.

3. Labour and material cost is estimated to be $400,000 per subway car and the fixed cost $3,000,000 per year.

4. Subway car project will require an addition to net working capital of $3,000,000, which will be fully recovered after 15 years.

5. CCA rate is 25%, tax rate is 40% and the appropriate discount rate is 12%.

What is the bid price per subway car?