What bid price per carton should you submit

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Reference no: EM13272558

ABC Enterprise needs someone to supply it with 100,000 cartons of machine screws per year to support its manufacturing needs over the next 4 years, and you've decided to bid on the contract. Before bidding the contract, you have already spent $5,000 to conduct market research. It will cost you $20,000 to install the equipment necessary to start production; you will depreciate straight-line to zero over the project's life. You estimate that in 4 years, this equipment can be salvaged for $40,000. To purchase the equipment, it appears that the firm would have to borrow $100,000 at 5% interest from its local bank, resulting in additional interest payments of $5,000 per year. Your fixed production costs will be $100,000 per year, and your variable production costs should be $5 per carton. You also need an initial increase in inventory of $50,000, all of which will be recovered when the project ends. Assume that your tax rate is 34% and you require a 10% return on your investment. What bid price per carton should you submit?

Reference no: EM13272558

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