Question
Let's say there is an investment plan to supply 100,000,000 stamps annually to USPS over the next five years. You have land that you don't
Let's say there is an investment plan to supply 100,000,000 stamps annually to USPS over the next five years. You have land that you don't use now, after buying for $750,000 five years ago. If you sell this land now, you can get $1,125,000 on a post-tax basis, and if you sell it after five years, you can get $1,295,000 on a post-tax basis. It costs $5,100,000 to build a new factory to produce stamps and purchase production facilities, and factories and production equipment are depreciated on a straight-line basis over the five-year life of the investment, resulting in a residual value of zero in the books. However, at the end of the life of the investment, the production equipment can be sold for $450,000. The initial investment in a net driver copy is $425,000, and $50,000 has since been invested in a net driver copy every year. The production cost is 0.38 cents (=0.0038 dollars) per stamp, and the annual fixed cost is $1,100,000. If the tax rate applied to you is 23%, and the rate of return you ask for this investment is 10%, what bid price should you offer to win the contract?
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