Reference no: EM133020554

Question - Ham & Ma, Inc. is submitting a bid to supply hammers for the Beijing Olympics Construction Company (BOCC). The BOCC will buy 3,000 hammers per year for the next 3 years. To supply the hammers, Ham & Ma must buy $175,000 worth of manufacturing equipment. The equipment has a 5-year life and will be depreciated for tax purposes on a straight-line basis. The contract is for 3 years, and Ham & Ma plans to sell the equipment at the end of 3 years for an estimated $55,000 (which is taxable). Additional fixed costs will total $42,000 per year and variable costs are expected to be $1.50 per hammer. An additional investment of $17,500 in net working capital will be required at the start of the project. This investment will be recovered at the end of 3 years. The firm's tax rate is 37% and the required rate of return is 17%. What is the lowest price that Ham & Ma can charge for the hammers?