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The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as
The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is set the project NPV to zero and solve for the variable in question. Martin Enterprises needs someone to supply it with cartons of machine screws per year to support its manufacturing needs over the next five years, and youve decided to bid on the contract. It will cost $ to install the equipment necessary to start production; youll depreciate this cost straightline to zero over the projects life. You estimate that, in five years, this equipment can be salvaged for $ Your fixed production costs will be $ per year, and your variable production costs should be $ per carton. You also need an initial investment in net working capital of $ The tax rate is percent and you require a return of percent on your investment. Assume that the price per carton is $
a
Calculate the project NPVDo not round intermediate calculations and round your answer to decimal places, eg
b
What is the minimum number of cartons per year that can be supplied and still break even? Do not round intermediate calculations and round your answer to the nearest whole number, eg
c
What are the highest fixed costs that could be incurred and still break even? Do not round intermediate calculations and round your answer to decimal places, eg
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