Question
Joseph Production Company is bidding a 10-year contract to provide the customer with 35,000 units of product per year. Their accounting department has estimated a
Joseph Production Company is bidding a 10-year contract to provide the customer with 35,000 units of product per year. Their accounting department has estimated a labor and material costs of $38 per unit. An initial capital investment of $1,000,000 is required. The equipment belongs to CCA class 50. Initial net working capital of $65,000 is also needed, as are subsequent investments of $8,000 per year over the life of the contract. The firm must pay factory lease expenses of $63,000 per year. Equipment maintenance expenses are projected to be $40,000 per year. Both lease expenses and maintenance expenses are payable at the end of the year. At the end of the contract, the capital equipment can be sold for $60,000. The firm has a tax rate of 42% and a required return rate of 14%.
Required:Determine the before tax unit price Joseph should bid for this contract. Round the unit price to the nearest dollar. Show all calculations.
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