Your company has been approached to bid on a contract to sell 5,000 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 Due to technological improvements, beyond that time they will be outdated and no sales will be possible.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 $3.5 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 $415,000 which will be returned at the end of the project, and the equipment can be sold for $345,000 at the end of production. Fixed costs are $590,000 per year, and variable costs are $79 per unit. In addition to the contract, you feel your company can sell 12,200, 14,300, 18,300, and 10,800 additional units to companies in other countries over the next four years, respectively, at a price of $181. This price is fixed. The tax rate is 24 percent, and the required return is 12 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.) Answer is complete but not entirely correct. Bid price $ 183.44X
Your company has been approached to bid on a contract to sell 5,000 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 Due to technological improvements, beyond that time they will be outdated and no sales will be possible.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 $3.5 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 $415,000 which will be returned at the end of the project, and the equipment can be sold for $345,000 at the end of production. Fixed costs are $590,000 per year, and variable costs are $79 per unit. In addition to the contract, you feel your company can sell 12,200, 14,300, 18,300, and 10,800 additional units to companies in other countries over the next four years, respectively, at a price of $181. This price is fixed. The tax rate is 24 percent, and the required return is 12 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.) Answer is complete but not entirely correct. Bid price $ 183.44X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Your company has been approached to bid on a contract to sell 5,000 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 $3.5 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 $415,000 which will be returned at the end of the project, and the equipment
can be sold for $345,000 at the end of production. Fixed costs are $590,000 per year,
and variable costs are $79 per unit. In addition to the contract, you feel your company
can sell 12,200, 14,300, 18,300, and 10,800 additional units to companies in other
countries over the next four years, respectively, at a price of $181. This price is fixed. The
tax rate is 24 percent, and the required return is 12 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.)
Answer is complete but not entirely correct.
Bid price
$ 183.44 X
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