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 18,000 voice recognition (VR) computer keyboards per year for four years. Due to

image text in transcribed
Your company has been approached to bid on a contract to sell 18,000 voice recognition (VR) computer keyboards per 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 Due to technological improvements, beyond that time they will be outdated and no sales will be possible.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 $3.6 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 $125,000 to be returned at the end of the project, and the equipment can be sold for $250,000 at the end of production. Fixed costs are $775,000 per year and variable costs are $43 per unit. In addition to the contract, you feel your company can sell 4,000, 12,000, 14,000, and 7,000 additional units to companies in other countries over the next four years, respectively, at a price of $135. This price is fixed. The tax rate is 24 percent, and the required return is 13 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $100,000. 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.) Bid price

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

Step: 3

blur-text-image

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 Institutions Management

Authors: Anthony Saunders, Marcia Cornett

8th Edition

0078034809, 978-0078034800

More Books

Students also viewed these Finance questions