What is the minimum bid price should you submit

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Reference no: EM131957998

Question: Your company is considering bidding on a project to supply 16,000 e-pods per year to Apple's competitor for the next five years. You have an idle parcel of land available that you purchased for $1,000,000 five years ago. If the land were sold today you would receive $1,312,500. You will need to invest $3,100,000 in a new manufacturing plant and equipment that will be depreciated on a straight-line basis over the five year project. You estimate that the equipment, plant and land can be sold for $600,000 at the end of five years. You will need to invest $600,000 in initial working capital and an additional $50,000 each year to support the project. You estimate the variable cost will be $50 per e-pod, and fixed costs will be $800,000 per year. Assuming you have a 15% cost of capital and a 34% tax rate, what is the minimum bid price should you submit?

Reference no: EM131957998

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