To solve the bid price problem presented in the text, we set theproject NPV equal to zero and found the required price using thedefinition of OCF. Thus the bid price represents a financialbreak-even level for the project. This type of analysis can beextended to many other types of problems. Martin Enterprises needssomeone to supply it with 137,000 cartons of machine screws peryear to support its manufacturing needs over the next five years,and you’ve decided to bid on the contract. It will cost you$970,000 to install the equipment necessary to start production;you’ll depreciate this cost straight-line to zero over theproject’s life. You estimate that, in five years, this equipmentcan be salvaged for $121,000. Your fixed production costs will be$545,000 per year, and your variable production costs should be$18.55 per carton. You also need an initial investment in networking capital of $114,000. Assume your tax rate is 22 percent andyou require a return of 12 percent on your investment. a. Assumingthat the price per carton is $28.40, what is the NPV of thisproject? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.) b. Assuming that theprice per carton is $28.40, find the quantity of cartons per yearyou can supply and still break even. (Do not round intermediatecalculations and round your answer to the nearest whole number,e.g., 32.) c. Assuming that the price per carton is $28.40, findthe highest level of fixed costs you could afford each year andstill break even.

Light emitting diode (LED) light bulbs have become required inrecent years, but do they make financial sense? Suppose a typical60-watt incandescent light bulb costs $.50 and lasts for 1,000hours. A 15-watt LED, which provides the same light, costs $3.65and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1hour. Suppose you have a residence with a lot of incandescent bulbsthat are used on average 500 hours a year. The average bulb will beabout halfway through its life, so it will have 500 hours remaining(and you can’t tell which bulbs are older or newer).

If you require a return of 9 percent, at whatcost per kilowatt-hour does it make sense to replace yourincandescent bulbs today?

Letang Industrial Systems Company (LISC) is trying to decidebetween two different conveyor belt systems. System A costs$300,000, has a four-year life, and requires $101,000 in pretaxannual operating costs. System B costs $380,000, has a six-yearlife, and requires $95,000 in pretax annual operating costs. Bothsystems are to be depreciated straight-line to zero over theirlives and will have zero salvage value. Whichever project ischosen, it will not be replaced when it wears out. The taxrate is 22 percent and the discount rate is 10 percent.

Calculate the NPV for both conveyor belt systems.