MMM is seeking to buy 1,000 temperature dials per year for the next 5 years, and they are putting the purchase out to bid across a handful of dial manufacturers.

Coincidentally, our firm produces dials! To figure out our most competitive bid price consider the following:

• project involves selling 1,000 units at $Bid per year, for 5 years
• assume first 1,000 unit sale occurs one year from today
• cost of producing 1,000 units/year is fixed at $300,000 total
• we would have to invest 900,000 in new operating equipment to produce the requested dial
• we would depreciate above equipment to $0 book value over 5 years
• market salvage value of equipment is estimated to be zero
• we would have to invest $20,000 in raw material / inventory (NWC) to start, and would recover the NWC investment at end of project's life
• our tax marginal tax rate is 38%
• our required return on investment is 12%

What is the lowest bid price per dial that we would charge MMM?

With regard to the above MMM bid... We are told by MMM that if we can reduce our bid to $580 per dial, they will accept our offer. To make our bid more competitive, we try to obtain the equipment needed at a cost of less than $900,000, but fail to do so. Finally, we ask our operations/engineers if it would be possible to produce the 1,000 dials at a cost of less than $300,000 per year. Holding all else constant, what is the break-even fixed-cost to produce the dials each year with a bid price of $580 per dial?