Question
Sheldon Coopers Lab Services (SCLS) is bidding upon a service contract to maintain and upgrade 2 of the University's science labs per year for the
Sheldon Coopers Lab Services (SCLS) is bidding upon a service contract to maintain and upgrade 2 of the University's science labs per year for the next six years. The contract will require purchasing $724,000 in equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. The equipment can be sold for $325,000 at the end of the service contract. They will also need $140,000 in net working capital over the life of the contract. While performing the contract work, they expect to incur fixed costs of $500,000 per year and a variable cost of $145,000 per lab. They will also face a corporate tax rate of 21%. If the required rate of return is 15%, what is the minimum offer they can make per lab and still turn an economic profit?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started