Determine the before tax unit price Joseph should bid

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Reference no: EM132758542

Question - Joseph Production Company is bidding an 8-year contract to provide the customer with 35,000 units of product per year. Their accounting department has estimated a labor and material costs of $55 per unit. An initial capital investment of $800,000 is required. The equipment belongs to CCA class 43. Initial net working capital of $35,000 is also needed, as are subsequent investments of $6,000 per year over the life of the contract. The firm must pay factory lease expenses of $38,000 per year. Equipment maintenance expenses are projected to be $42,000 per year. Both lease expenses and maintenance expenses are payable at the end of the year. At the end of the contract, the capital equipment can be sold for $10,000. The firm has a tax rate of 45% and a required return rate of 20%.

Required - Perform the bid price calculation. Determine the before tax unit price Joseph should bid for this contract. Round the unit price to the nearest dollar. Show all calculations.

Reference no: EM132758542

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