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You run a perpetual encabulator machine, which generates revenues averaging $20 million per year. Raw material costs are 50% of revenues. These costs are variablethey
You run a perpetual encabulator machine, which generates revenues averaging $20 million per year. Raw material costs are 50% of revenues. These costs are variablethey are always proportional to revenues. There are no other operating costs. The cost of capital is 9%. Your firms long-term borrowing rate is 6%. Now you are approached by Studebaker Capital Corp., which proposes a fixed-price contract to supply raw materials at $10 million per year for 10 years. b. Calculate the present value of the encabulator machine with and without the fixed-price contract
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