Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your company has been approached to bid on a contract to sell 5,250 voice recognition (VR) computer keyboards a year for four years. Due to

Your company has been approached to bid on a contract to sell 5,250 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $4 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $440,000 to be returned at the end of the project, and the equipment can be sold for $395,000 at the end of production. Fixed costs are $615,000 per year, and variable costs are $84 per unit. In addition to the contract, you feel your company can sell 13,200, 15,300, 18,800, and 11,300 additional units to companies in other countries over the next four years, respectively, at a price of $188. This price is fixed. The tax rate is 24 percent, and the required return is 9 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $150,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management For Public Health And Not For Profit Organization

Authors: Steven A. Finkler

3rd International Edition

0138152772, 9780138152772

More Books

Students also viewed these Finance questions