You have been assigned to respond to an RFP on a contract to supply 17,500 units of a product per year to a U.S company for a period of four (4) years. The necessary capital investment is $4.0 million, which will be depreciated for tax purposes using the five-year MACRS asset class depreciation schedule. The equipment is expected to have a $300,000 residual value at the completion of the contract. The added production and sales are estimated to require an additional $90,000 of inventory, $75,000 of accounts receivable, $25,000 of cash, and $50,000 of accounts payable for the duration of the contract. The costs associated with the production are as follows:

Direct labor: $1.0 million

Materials: $2.0 million

Direct power and light: $62,500

Occupancy, insurance and other overheads: $600,000

If your firm makes this capital investment, it will have sufficient excess capacity to make and sell additional units of the product, over and above the 17,500 units per year under the contract, for export to European customers, at a price of $285 each, over the four years of the project, as follows:

Year 1: 3,000 units; Year 2: 6,000 units; Year 3: 8,000 units; Year 4: 5,000 units. Again, these sales would be in addition to the 17,500 units per year supplied under the contract, taking advantage of the excess capacity afforded by the $4.0 million capital investment.

The firm's tax rate is 25%. The funding cost for the proposed project is 13%. Finally, the minimum acceptable NPV is a positive $100,000.

Required: Come up with the price the firm should bid on the contract for 17,500 units per year to the U.S. company.