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Roots Canada needs new hats. You are considering bidding on a project. The project details include: 4 year life Initial investment of $50,000 in working
- Roots Canada needs new hats. You are considering bidding on a project. The project details include:
- 4 year life
- Initial investment of $50,000 in working capital
- Upfront costs of $175,000 for a new injection-moulding machine.
- $20,000 in yearly pre-tax operating costs
- Your company has a tax rate of 35%
- Your company's required rate of return is 15%
- At the end of 4 years you can sell the equipment for $30,000
- There is no depreciation consideration for this equipment
- Complete the following table and calculate the net present value for the project costs.
- determine Equivalent Annual Cost
- If the contract requires you to make 15,000 toques, what is the minimum amount you would bid/toque?
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Cash Flows | PV | 0 | 1 | 2 | 3 | 4 |
Initial Cost | -50,000 |
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Upfront Costs |
| -175,000 |
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After Tax Savings |
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Total CFs |
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NPV |
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