What is the lowest possible per shovel price

Assignment Help Other Subject

Reference no: EM131914371

Problem

Merton Shovel Corporation has decided to bid for a contract to supply shovels to the Honduran Army. The Honduran Army intends to buy 1,100 shovels per year for the next 3 years. To supply these shovels, Merton will have to acquire manufacturing equipment at a cost of $156,000. This equipment will be depreciated on a straight-line basis over its five-year lifetime. At the end of the third year, Merton can sell the equipment for exactly its book value ($62,400). Additional fixed costs will be $40,000 per year, and variable costs will be $2 per shovel. An additional investment of $22,100 in net working capital will be required when the project is initiated. This investment will be recovered at the end of the third year. Merton Shovel has a 35 percent marginal tax rate and a 16 percent required rate of return on the project. What is the lowest possible per shovel price that Merton can offer for the contract and still create value for its stockholders?

Reference no: EM131914371

Questions Cloud

Premiums are returned with interest : Find a formula for P, assuming (a) premiums are returned without interest, (b) premiums are returned with interest.

Compute the target cost for the slim slicer : Compute the target cost for the Slim Slicer. When is target costing particularly helpful in deciding whether to produce a given product?

Customers waiting during the repair process : In the economic analysis of the waiting line system, the company uses $45 per hour cost for customers waiting during the repair process.

Calculate the federal estate tax due on estate : When Jacob Kohler died unmarried in 2015. Use Worksheet 15.2 and Exhibit 15.7 and Exhibit 15.8 to calculate the federal estate tax due on his estate.

What is the lowest possible per shovel price : What is the lowest possible per shovel price that Merton can offer for the contract and still create value for its stockholders?

How you analyzed the different aspects of the conflict : Job postings often state that the successful applicant must have "superior critical thinking and problem solving skills."

Discuss the aggressive government intervention : Given those successes and many others, do we need more aggressive government intervention in America's endangered family life?

What is the new initial investment for the new machine : What is the new initial investment for the new machine? Compute the expected new cash flow at the end of year 3.

Retail price calculator : Retail Price Calculator - program that asks the user to enter an item's wholesale cost and its markup percentage. It should then display the item's retail price

User Account

All Pages