Using NPV to Calculate Bid Price

Canyon Buff Corp. has decided to ask suppliers to bid on the $150,000$ cartons of precision machine screws that Canyon Buff needs to purchase per year to support its manufacturing needs over the next five years. You have decided to submit a bid to supply the machine screws.It will cost you $$780,000$ to install the necessary equipment which will be fully depreciated $($means salvage value is zero$)$ over a straight line basis over five years.

$$ Incremental Selling, General & Administrative expense will be $$240,000$ a year and

variable costs will be $$8\mathrm{.}50$ per carton.

$$ All sales and raw materials purchases will be made in cash however you will need

$$75,000$ in raw material inventory to begin the project thereafter NWC will stay

constant over the five years until the end of the project where you will no longer need

the inventory.

$$ You have a $16\%$ cost of capital and a $35\%$ tax rate.

What is the minimum price per carton that you should bid?