Reference no: EM132948800

A manufacturing company posted a request for quotation for a supplier to supply it with special widgets to increase the output productivity. A manufacturing company wants to purchase 326,000 widgets per year for the next seven years. If you decide to bid on the project, you know that you will have to purchase and install $750,000 of specialized equipment, which has a 30% CCA rate using AII method. At the end of the contract, you believe that you will be able to sell this equipment for $130,000. The fixed production costs are $117,000 per year and the variable costs are $5.23 per widget. You estimate that your NWC will initially rise by $96,000 at the start of the project but you will recover all of this when the project terminates. The firm's tax rate is 25% and you want to earn a 20% return.

Problem 1: What price should you bid per widget?

Problem 2: Based on your analysis, what price should you bid for each carton of beer?

Multiple Choice

Option 1: $6.90

Option 2: $5.99

Option 3: $6.35

Option 4: $5.23