If a competitive bid must be submitted to win a job, the winner is whoever submits

the lowest bid.

Imagine we are in the business of buying stripped$-$down truck platforms and then

modifying them to customer specifications for resale. A local distributor has

requested bids for five specially modified trucks each year for the next four years,

for a total of $20$ trucks in all. We need to decide what price per truck to bid.

$$ Suppose we can buy the truck platforms for $$10,000$ each.

$$ Facilities we need can be leased for $$24,000$ per year.

$$ Labor and material cost for modification is about $$4,000$ per truck.

$$ Total cost per year will be

$$24000++=5(100004000)$ $$94000.$

What price per truck should we bid if we require a $20\%$ return?

$$ We will need to invest $$60,000$ in new equipment, which will be depreciated

straight$-$line to a zero$-$salvage value over the four years. It will be worth about

$$5,000$ at the end of that time.

$$ Need to invest $$40,000$ in raw materials inventory and other working capital

items. The relevant tax rate is $21\%.$