Determining appropriate bid price

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Reference no: EM1371328

Guthrie Enterprises needs someone to supply it with 230,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $1,000,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. Your fixed production costs will be $410,000 per year, and your variable production costs should be $8.50 per carton. You also need an initial investment in net working capital of $60,000. No additional working capital is needed and no working capital will be returned. If your tax rate is 35% and you require a 14% return on your investment, what bid price should you submit?

Reference no: EM1371328

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