You will bid to supply 3 jets per year for each of the next three years to the Navy.

To get set up, you will need $60 million in equipment, to be depreciated straight‐line to zero over three years, with no salvage value. Total fixed costs per year are $10 million, and variable costs are $12 million per jet. 

a: Assuming a tax rate of 35% and a required return of 12%, What is the minimum price at which you should offer to supply the jets?  

b. If the maximum you can offer is $22 million each, What should you receive in salvage value before taxes in year 3 for the equipment?