What is the minimum price per carton that you should bid

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Reference no: EM133092212

Question - ABC Corp. has decided to ask suppliers to bid on the 50,000 cartons of precision machine screws that ABC Corp. needs to purchase per year to support its manufacturing needs over the next five years. You have decided to submit a bid to supply the machine screws.

-It will cost you $800,000 to install the necessary equipment which will be fully depreciated over a straight line basis over five years (means salvage value will be zero at the end of the fifth year). 

-Incremental Selling, General & Administrative expense will be $150,000 a year and variable costs will be $9.50 per carton.

-For simplicity, assume the level of net working capital equals zero from Year 0 to Year 5. 

-The project has a 10% cost of capital and a 21% tax rate.

What is the minimum price per carton that you should bid?

Reference no: EM133092212

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