What bid price should you submit on the contract

Assignment Help Financial Management

Reference no: EM131074627

Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,900,000 five years ago; if the land were sold today, it would net you $2,100,000 aftertax. The land can be sold for $2,300,000 after taxes in five years. You will need to install $5.4 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project’s five-year life. The equipment can be sold for $500,000 at the end of the project. You will also need $600,000 in initial net working capital for the project, and an additional investment of $50,000 in every year thereafter. Your production costs are 0.5 cents per stamp, and you have fixed costs of $1,050,000 per year. If your tax rate is 34 percent and your required return on this project is 12 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your final answer to 5 decimal places. (e.g., 32.16161))

Reference no: EM131074627

Questions Cloud

What is the total market value of this firm : The current stock price for a company is $34 per share, and there are 7 million shares outstanding. This firm also has 170,000 bonds outstanding, which pay interest semiannually. If these bonds have a coupon interest rate of 9%, 19 years to maturity,..

Decided to add leverage to their financial operations : Martin and Sons (M and S) currently is an all equity firm with 48,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $82,000. M and S has decided to add leverage to their financial o..

What spread position would you use to effect an arbitrage : Suppose call and put prices are given by: Strike 75 80 Call premium 7 8 Put premium 4 10. What no-arbitrage condition is violated by the call premiums? What spread position would you use to effect an arbitrage?

What is the firm’s market value capital structure : Titan Mining Corporation has 8.6 million shares of common stock outstanding, 300,000 shares of 5 percent preferred stock outstanding, and 160,000 7.4 percent semiannual bonds outstanding, par value $1,000 each. What is the firm’s market value capital..

What bid price should you submit on the contract : Consider a project to supply 100 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,900,000 five years ago; if the land were sold today, it would net you $2,100,0..

Dequate compensation for this investment : You are considering the purchase of Crown Bakery, Inc. common stock that just paid a dividend od $19.59 per share. You expect the dividend to grow at a rate of 1.04 percent per year, indefinitely. You estimate the rate of return od 12.18%, will be ad..

Average-risk investment in mineral water spring project : The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $155,000. The project will produce 950 cases of mineral water per year indefinitely. Assume that cash flows consist only of after-tax..

How much loss would company recognize on income statement : Randy's tireland makes a product that sells for $63 per unit and has $47 per unit in variable costs. Annual fixed costs are $24,000. If Rambles sells 10 units less than breakeven, how much loss would the company recognize on its income statement?

How many phones must be sold to achieve the breakeven point : U.S. Telephone Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10% (based on the unit sales price per phone). Fixed manufacturing costs total $1,230 per month, while fixed selling and administrativ..

User Account

All Pages