Lienzo Linens Lienzo Linens paid a consultant $10,000 to facilitate selling duffle bags to the navy. The consultant reports that they can get a contract to sell 30,000 duffle bags for each of the next six years. This is a relatively large order, but Lienzo Linens has been working with the necessary materials and selling wholesale to outdoor equipment manufacturers for the past thirty years. To fill such a large order in the first year Lienzo Linens will need to run its current manufacturing equipment longer each day and pay a substantial amount of overtime until a new factory can be built and supplied with new machines and hiring more workers. Material and labor costs will run at $35.50 per duffle bag in the first year. Lienzo Linens will immediately begin the process of building a new factory near its current factory. They own the land for the new factory; it paid $225,000 for it several years ago and the value hasn't changed. The new factory will be operational beginning in the second year of the order. The factory will cost $600,000 - half payable at the beginning of construction (now) and the other half payable at the end of construction (at the end of Year 1). Use a ten-year straight-line depreciation schedule for the factory starting in Year 2. This second factory will probably not be needed beyond this order so they will look to sell it and the land after the project is completed six years from now for a price of $425,000. New equipment will need to be purchased one year from now when the factory is operational and will cost $78,000. The new equipment can be depreciated to zero over three years and it will have no value once the project is completed. Operating the new factory will cost $65,000 each year and reduce the material and labor costs to $26.90 per duffle bag for the rest of the project. Net Working Capital will be 13.1% of the next years' sales revenue, the appropriate discount rate for future cash flows is 8.25%, and the tax rate is 24%. What is the minimum price per duffle that Lienzo Linens could present to the navy? The consultant recommends bidding $1.00 over the minimum price (rounded to the nearest penny). What would be the net present value if they ask for $1.00 above the minimum? B Year o Year 1 E Year 3 Year 2 Year 4 Year 5 1 Year 6 Year 7 2 3 NI 4 NWC 5 OCF 6 ICF 7 8 Minimum Price 9 10 Suggested Price (Round to nearest penny) 11 12 NPV with Suggested Price 13 14 15 16 17 18 19 20 Lienzo Linens Lienzo Linens paid a consultant $10,000 to facilitate selling duffle bags to the navy. The consultant reports that they can get a contract to sell 30,000 duffle bags for each of the next six years. This is a relatively large order, but Lienzo Linens has been working with the necessary materials and selling wholesale to outdoor equipment manufacturers for the past thirty years. To fill such a large order in the first year Lienzo Linens will need to run its current manufacturing equipment longer each day and pay a substantial amount of overtime until a new factory can be built and supplied with new machines and hiring more workers. Material and labor costs will run at $35.50 per duffle bag in the first year. Lienzo Linens will immediately begin the process of building a new factory near its current factory. They own the land for the new factory; it paid $225,000 for it several years ago and the value hasn't changed. The new factory will be operational beginning in the second year of the order. The factory will cost $600,000 - half payable at the beginning of construction (now) and the other half payable at the end of construction (at the end of Year 1). Use a ten-year straight-line depreciation schedule for the factory starting in Year 2. This second factory will probably not be needed beyond this order so they will look to sell it and the land after the project is completed six years from now for a price of $425,000. New equipment will need to be purchased one year from now when the factory is operational and will cost $78,000. The new equipment can be depreciated to zero over three years and it will have no value once the project is completed. Operating the new factory will cost $65,000 each year and reduce the material and labor costs to $26.90 per duffle bag for the rest of the project. Net Working Capital will be 13.1% of the next years' sales revenue, the appropriate discount rate for future cash flows is 8.25%, and the tax rate is 24%. What is the minimum price per duffle that Lienzo Linens could present to the navy? The consultant recommends bidding $1.00 over the minimum price (rounded to the nearest penny). What would be the net present value if they ask for $1.00 above the minimum? B Year o Year 1 E Year 3 Year 2 Year 4 Year 5 1 Year 6 Year 7 2 3 NI 4 NWC 5 OCF 6 ICF 7 8 Minimum Price 9 10 Suggested Price (Round to nearest penny) 11 12 NPV with Suggested Price 13 14 15 16 17 18 19 20