Question
Last month your company posted $100,000 with Contracts-R-Usto get approved to bid on contracts via their website.Trump Enterprises is looking for a supplier of red
Last month your company posted $100,000 with Contracts-R-Usto get approved to bid on contracts via their website.Trump Enterprises is looking for a supplier of red baseball caps, and your boss wants you to bid on the contract. The company requires 114,000 baseball caps per year over the next five years. You estimate that the necessary equipmentwill cost $810,000,and the equipment will bedepreciatedstraight-line to zero over the project's life. You believe this equipment can be sold for $64,000 at the end of the project.
Youfurther estimate thefixed costs to be$319,000 per year, and the variable production costs to be $9.70 per hat. You'll need an initial investment in net working capital of $69,000, but this will be recovered at the end of the project. Your tax rate is 30 percent and you require a return of 11 percent on your investment.
What is the lowest bid price (per unit) you should submit (i.e. price where NPV=0)?
Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV = 0.(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
OCF*$
Part B: Now calculate the bid price.(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Bid price$
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