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To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the

To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems.

Romo Enterprises needs someone to supply it with 116,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $830,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $66,000. Your fixed production costs will be $321,000 per year, and your variable production costs should be $9.90 per carton. You also need an initial investment in net working capital of $71,000. Assume your tax rate is 34 percent and you require a 10 percent return on your investment.

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To solve the bid price problem presented in the text. we set the project NPV equal to zero and found the required price using the denition of DEF. Thus the bid price represents a nancial break-even level for the project. This type of analysis can be extended to many other types of problems. Home Enterprises needs someone to supply it with 11 6.0!][1 cartons of machine screws per year to support its manufacturing needs over the next ve years. and you've decided to bid on the contract. It will cost you HEBREW to install the equipment necessary to start produccn: you'll depreciate this cost straight- Iine to zero ever the project's life. You estimate that, in ve years, this equipment can be salvaged for EEDDD. Your xed prod ucticn costs will be $321,000 per yearr and your variable production costs should be $9.9!) per carton. 1You also need an initial investment in net working capital of 5T1 ,. Assume your tax rate is 34 percent and you require a 10 percent retum on your investment. a.hssuming that the price per carton is $165!], what is the MimiIr of this project? {Do not round intermediate calculations and round your answerto 2 decimal placesI e.g., 32.15.] ww s: b. Assuming that the price per carton is $16.60. nd the quantity of cartons per year you need to supply to break even. {Do not: round intermediate calculations and round your answer to nearest whole number.) Quantity of carbns :l c. Assuming that the price per carton is $16.60, nd the highest level of xed costs you could afford each year and still break even. {Do not round intermediate calculations and round your answer to 2 decimal places. e.g., 32.15.} pm... as

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