Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

RRR: Kirk Enterprises has been approached to bid on a contract to sell 40,000 voice recognition computer keyboards a year for four years. Due to

RRR: Kirk Enterprises has been approached to bid on a contract to sell 40,000 voice recognition computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $4 million and will be depreciated on a straight-line basis to zero over the project's life. Production will require an investment in net working capital of $80,000 to be returned at the end of the project, and the equipment can be sold for $250,000 at the end of production. Fixed costs are $800,000 per year, and variable costs are $50 per unit. The tax rate is 40 percent, and the required return is 14 percent. Additionally, the president of Kirk Enterprises will undertake the project only if it has an NPV of $10,000. The present value of an Annuity of $1 per year for 4 years discounted at 14% is $2.9137. All cash flows are assumed to occur at the end of the year.

What will be the after-tax salvage value of the equipment at the end of year 4? What is the necessary operating cash flow (OCF) per year that will give the project an NPV of $10,000? What bid price should the president of Kirk Enterprises set for the contract?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Meaningful Money Handbook

Authors: Pete Matthew

1st Edition

0857196510, 978-0857196514

Students also viewed these Finance questions

Question

2. What is the impact of information systems on organizations?

Answered: 1 week ago

Question

Evaluate the impact of technology on HR employee services.

Answered: 1 week ago