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Kenneth Lay, Director of ticket sales for Translink, recently put out an RFQ for the supply of new ticketing machines for Skytrain. Translink needs to purchase 100 new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $750,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, computed using the Accelerated Investment Incentive Method. You believe that you will be able to sell the new equipment for $200,000 at the end of the project. It will cost you $2,500 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $100,000 per year. Net working capital will rise by $50,000 initially but this will all be recovered at the end of the project. Your firms tax rate is 30% and the firms cost of capital is 20%. Accelerated investment incentive applies. How much should we bid to produce each new ticketing machine?

Answer format: Cash inflows are positive (no + sign). Cash outflows are negative (use - sign).

e.g. Positive cash inflow: +$X,XXX.XX = XXXX or +$1,234.56 = 1235 (no + sign, no commas, round to nearest whole number)

e.g. Negative cash outflow: -$X,XXX.XX = -XXXX or -$1,234.56 = -1235 (use - sign, no commas, round to nearest whole number)

The correct value to use for Step #1 - the PV of the initial cost, is:

The correct value to use for Step #2 - the PV of the incremental, after-tax costs & revenues, is:

The correct value to use for Step #3 - the PV of the tax shield from CCA, is:

The correct value to use for Step #4 - the PV of salvage, is:

The correct value to use for Step #5 - the PV of the tax shield lost due to salvage, is:

The correct value to use for Step #6 - the PV of the change in net working capital, is:

The NPV of the total cost stream for the new ticket machines is:

The correct bid price we should submit is:

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