Falcon Company is specialized in manufacturing small plastic bags. In 2019, the company has spent JOD 20,000 on marketing campaign. In 2020, a project to
Falcon Company is specialized in manufacturing small plastic bags. In 2019, the company has spent JOD 20,000 on marketing campaign. In 2020, a project to supply 100 million small plastic bags per year to Royal Jordanian for the next five years. Falcon Company has a land cost JOD 2,400,000 available for the project that was bought five years ago; if the land were sold today, it would net the company by JOD 2,700,000 after-tax. The land can be sold for JOD 3,200,000 after tax in five years. Falcon Company will need to install JOD 4,100,000 in new manufacturing equipment to produce the small plastic bags; this equipment will be depreciated straight-line to zero over the projects five-year life. The equipment can be sold for JOD 540,000 at the end of the project. The company will also need JOD 600,000 in initial net working capital for the project, and an additional investment of JOD 50,000 in every year thereafter. The production costs are JOD 0.500 per small plastic bag, and the yearly fixed costs are JOD 950,000.
Required:
The Chief Executive Officer of the company has asked you as a Financial Manager to recommend the bid price to submit on the contract, knowing that the current tax rate is 34% and the discount rate is 12%.
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