Question
Martin enterprises needs someone to supply it with 117,000 cartons of machine screw per year to support its manufacturing needs over the next five years,
Martin enterprises needs someone to supply it with 117,000 cartons of machine screw per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. it will cost you 780,000 to install the equipment necessary to start production, you'll depreciate this cost straght-line to zero over the projects life. You estimate that, in five years, this equipment can be salvaged for 128,000. Your fixed production costs will be 405,000 per year, and your variable production costs should be $10.00 per carton. You also need an initial investment in net working capital of $67,000. If your tax rate is 23 percent and you require a return of 11 percent on your investment, what bid price should you submit?
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