Question
Saul Inc. needs someone to supply it with 250,000 planks of wood per year to support its manufacturing needs over the next three years, and
Saul Inc. needs someone to supply it with 250,000 planks of wood per year to support its manufacturing needs over the next three years, and your company has decided to bid on the contract. It will cost your firm $3,300,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the projects life. The salvage value of the equipment is expected to be $200,0000. Your fixed costs will be $550,000 per year, and your variable production costs is $8.00 per plank. You also need an initial investment in net working capital of $400,000, which will be recovered at the end of the project. The firm has a tax rate of 21% and the required rate of return is 10%.
a.) What is the initial cash flow? (Enter negative value and round to 2 decimals)
b.) What is the after tax salvage value? (Round to 2 decimals)
c.) What is the bid price? (Round to 3 decimals)
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