Guthrie Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $3 million to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. The market value of the retired machine is $500,000. Your production costs will be $1,955,000 per year. You also need an initial investment in net working capital of $325,000, which will be fully recovered at the end of the project. If your tax rate is 20 percent and you require a 10 percent return on your investment, what bid price should you submit? O A. $19.55/Carton O B. $15.33/Carton O C. $18.99/Carton O D.$16.11/Carton

Guthrie Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $3 million to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. The market value of the retired machine is $500,000. Your production costs will be $1,955,000 per year. You also need an initial investment in net working capital of $325,000, which will be fully recovered at the end of the project. If your tax rate is 20 percent and you require a 10 percent return on your investment, what bid price should you submit? O A. $19.55/Carton O B. $15.33/Carton O C. $18.99/Carton O D.$16.11/Carton

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 18P

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Martin Enterprises needs someone to supply it with 141,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $ 1,810,000 to install the equipment necessary to start production; you'll depreciate this cost straight - line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $151,000. Your fixed production costs will be $266, 000 per year, and your variable production costs should be $8.60 per carton. You also need an initial investment in net working capital of $131,000. If your tax rate is 21 percent and you require a return of 13 percent on your investment, what bid price per carton should you submit?
Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screwsper year to support its manufacturing needs over the next five years. It willcost $1,820,000 to install the equipment necessary to start production; you’ll depreciatethis cost straight-line to zero over the project’s life. You estimate that in five years thisequipment can be salvaged for $152,000. Your fixed production costs will be $267,000 peryear, and your variable production costs should be $9.60 per carton. You also need aninitial investment in net working capital of $132,000. The tax rate is 22 percent and youYear Market Value ($ millions)1 $ 14.702 $11.703 $9.204 $1.95require a return of 12 percent on your investment. Assume that the price per carton is$16.20.b. What is the minimum number of cartons per year that can be supplied and stillguarantee a zero NPV? Verify that the quantity you calculated is enough to atleast have a zero NPV.c. What are the highest fixed costs that could be incurred…
Guthrie Enterprises needs someone to supply it with 142,000 cartons of machine screwsper year to support its manufacturing needs over the next five years. It willcost $1,820,000 to install the equipment necessary to start production; you’ll depreciatethis cost straight-line to zero over the project’s life. You estimate that in five years thisequipment can be salvaged for $152,000. Your fixed production costs will be $267,000 peryear, and your variable production costs should be $9.60 per carton. You also need aninitial investment in net working capital of $132,000. The tax rate is 22 percent and you require a return of 12 percent on your investment. Assume that the price per carton is$16.20.a. Calculate the project NPV.b. What is the minimum number of cartons per year that can be supplied and stillguarantee a zero NPV? Verify that the quantity you calculated is enough to atleast have a zero NPV.c. What is the highest fixed costs that could be incurred and still guarantee a zeroNPV?…