Reference no: EM132869346

Problem 1: XYZ Inc. needs 80,000 boxes of parts per year over the next four years, and you are deciding on a bid for the contract. The capital equipment will cost $650,000 to install, which will be depreciated straight-line to zero over the life of the project. The equipment can be sold for $160,000 in four years. The fixed production costs are $310,000 per year, and the variable costs are $8.3 for each box. An initial investment in net working capital of $48,000 will be required. An additional $3,500 in networking capital will be required in years 1, 2, and 3. All of the networking capital investment will be recovered at the end of the project. You have a piece of land which you plan to use for the project. The land can be sold for $790,000 today after taxes. In four years, the land is expected to net $855,000 after taxes. The tax rate is 21 percent and you require a return of 18.5 percent. What bid price per box should you submit?