You work in a tannery for leather production. You are the CFO of the the company which name is a firm called X Leather Company, considering whether it will offer a contract to supply leather to a large apparel company called Zara. You received a note from your boss CFO for analysis and review. before the offer is submitted.

The marketing and sales department of X Leather Company made meeting with production department to make a bid. The bid requires to provide 100000 leathers per jacket for over 6 years. Proposed selling price in the first year is $50 per leather and is expected to increase in line with inflation. X Leather Company has negotiated a 10 percent increase in selling price with the Zara to compensate for inflation. The expenses of providing the leathers total $3500000 and are also expected to increase with inflation of 10%.

Since a lot of water and chemicals are used in the leather industry, it can cause problems in terms of sustanaility. That's why our company has entered into a formation called the Leather Working Group. Zara group only buys leather from companies in this formation. That is why we are a member of this group that fits sustanability. This creates a cost of 5 dollars per leather. In this way, our company is environmentally friendly.

X leather business needs to invest 50,000 dollars in additional equipment to provide leather services to the manufacturer in the next six years. The investment in equipment would be depreciated for tax purposes straight line over 6 years to zero. X leather claims that it will continue to use this equipment in other contracts. If X leather company does not get a new contract within 6 years, it can sell second-hand equipment for $ 12,000.

X leather considers investing in working capital for the leather supply process. Working capital will account for 6 percent of the current year's sales.

What is your recommendation regarding the bid to your CFO? Should X Leather Company bid for the contract if the discount rate for the project is 25 percent and the tax rate is 22 percent?

Note: The X leather company, which exports leather, is subsidized by the state. In this incentive, there is a 2% reduction in customs duty on raw materials imported from abroad. This 2% discount should be taken into account.