Consider a project to supply 100 million postage stamps per

Reference no: EM13394827

Consider a project to supply 100 million postage stamps per year to canada post for the next 5 years. You have an idle parcel of land available that cost $1,000,000 five years ago; if you sold the land today, it would net you $1,500,000 after tax. If you sold the land five years from now, the land can be sold again for $1,500,000 after tax. You will need to install $3,800,000 in new manufacturing plant and equip to actually produce stamps; this plant and equipment will be depreciated straight-line to zero over the project's five year life. The equipment can be sold for $680,000 at the end of the project. You will need $500,000 in initial net working capital for the project and an additional $50,000 every year thereafter. Your production costs are $0.5 cents per stamp, and you have fixed costs of $900,00 per year. If he tax rate is 34 percent and your required return on the project is 12 percent, what bid price should you submit on the contract?

Reference no: EM13394827

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