Martin Enterprises needs someone to supply it with 117,000 cartons of machine screws per year to...

60.1K

Verified Solution

Question

Finance

Martin Enterprises needs someone to supply it with 117,000cartons of machine screws per year to support its manufacturingneeds over the next five years, and you’ve decided to bid on thecontract. It will cost you $780,000 to install the equipmentnecessary to start production; you’ll depreciate this coststraight-line to zero over the project’s life. You estimate that,in five years, this equipment can be salvaged for $128,000. Yourfixed production costs will be $405,000 per year, and your variableproduction costs should be $10.00 per carton. You also need aninitial investment in net working capital of $67,000. If your taxrate is 23 percent and you require a return of 11 percent on yourinvestment, what bid price should you submit? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)

Answer & Explanation Solved by verified expert

3.7 Ratings (719 Votes)

Answer Year 0 cash flow Year 0 cash flow cost of equipment net working capital 780000 67000 847000 Year 1 to 5 Annual depreciation cost of equipment salvage value useful life 780000 0 5 156000 Annual See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Martin Enterprises needs someone to supply it with 117,000cartons of machine screws per year to support its manufacturingneeds over the next five years, and you’ve decided to bid on thecontract. It will cost you $780,000 to install the equipmentnecessary to start production; you’ll depreciate this coststraight-line to zero over the project’s life. You estimate that,in five years, this equipment can be salvaged for $128,000. Yourfixed production costs will be $405,000 per year, and your variableproduction costs should be $10.00 per carton. You also need aninitial investment in net working capital of $67,000. If your taxrate is 23 percent and you require a return of 11 percent on yourinvestment, what bid price should you submit? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)