Install the necessary equipment to start production

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Reference no: EM131069107

Central Valley Home needs someone to supply them with 30,000 cartons of machine screws to support their construction needs over the next five years, and you have decided to bid on the contract. It will cost you $250,000 to install the necessary equipment to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimated that in five years this equipment can be salvaged for $20,000. Your fixed production costs will be $75,000 per year, and your variable cost will be $5 per carton. You also need an initial investment in net working capital of $120,000 to start the project. If your tax rate is 30% and you require a 10% return on your investment, what bid price will you submit?

Reference no: EM131069107

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