Finding the "Maximum Bid" for a Capital Asset. Some of you will end up in positions where you negotiate prices for your firm. A useful tool to know is your price ceiling in negotiating a deal. In other words, what is the highest price you can pay for a fixed asset; using our course concepts, the highest price is the bid that allows the project to break-even. A local pizzeria wants to add a gelato freezer to their business. The manager feels that the freezer will allow them to sell $10,000 of gelato per year, with $6,000 in operating expenses associated with the product and operating the freezer and the firm wants to evaluate the project over 5 years. The freezer will be straight-line depreciated to zero over 5 years and is not expected to have any salvage value at that time. The tax rate facing the firm is 38.6%, while the cost of capital is 10%. Find the Maximum Bid for the gelato freezer

\begin{tabular}{l|c|c|c|c|c|c|} \hline Discount rate & 0.1 & & & & \\ \hline Tax rate & 0.386 & & & & \\ \hline Sales & $10,000 & & & & \\ Expenses & $6,000 & & & & \\ \hline Maximum bid & & & & & \\ \hline Year & 1 & 2 & 3 & 4 & 5 \\ \hline Sales & $10,000 & $10,000 & $10,000 & $10,000 & $10,000 \\ \hline Expenses & $6,000 & $6,000 & $6,000 & $6,000 & $6,000 \\ \hline Depreciation & & & & & \\ \hline EBIT & & & & & \\ \hline NOPAT & & & & & \\ \hline Depreciation & & & & & \\ \hline Project cash flow & & & & & \\ \hline Project NPV & & & & & \\ \hline \end{tabular}