Reference no: EM132943580

Problem 1: You are working on a bid to build two apartment buildings a year for the next three years. This project requires the purchase of $847,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. Ignore bonus depreciation. The equipment can be sold at the end of the project for $415,000. You will also need $165,000 in net working capital over the life of the project. The fixed costs will be $528,000 a year and the variable costs will be $1,640,000 per building. Your required rate of return is 16 percent for this project and your tax rate is 24 percent. What is the minimal amount, rounded to the nearest $100, you should bid per building?

Multiple Choice

Option 1: $4,158,400

Option 2: $4,489,500

Option 3: $2,065,700

Option 4: $2,780,600

Option 5: $2,244,800