Consider a project to supply 70 units of a product for the next five years. As the center of operations,you can use a building you own that cost $380 five years ago. Selling the building today would giveyou $330 after tax. If you start the project, you will not be able to sell the building until the project isover. You estimate that selling the building in 5 years will give you $800 after tax. You will also needto install $2,000 in new equipment at the beginning of the project; the equipment will bedepreciated straight-line to zero over the project's five-year life. The equipment can be sold for$1,500 at the end of the project. You will also need $35 in initial net working capital for the project,and an additional investment of $33 annually. All net working capital will be recovered when theproject ends. Your variable costs are $28 per unit, and you have fixed costs of $560 per year. Your taxrate is 35% and your required return on this project is 10%. If you were to submit a bid in aprocurement auction on this project, what bid price should you submit?O $40.25O $37.33$39.20O $40.91O $41.33

Capital budgeting is the process that businesses use to evaluate potential investments in long-term…

Answered: Consider a project to supply 70 units…

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1eM

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