What price will you bid for each stamp

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Reference no: EM13890267

Consider bidding for a project to supply 80 million postage stamps per year to USPS for the next 5 years. You have an idle parcel of land available at that cost $1 million 5 years ago, if the land was sold today, it would net you $1.2 million after tax. You will need to install $3.1 million in new manufacturing plant and equipment to produce the stamps; this equipment is considered a 5-year property for depreciation purposes which will be done according to MACRS. The equipment can be sold for $600,000 at the end of the project. You will also need $600,000 for working capital initially and $50,000 in every year thereafter. Your variable cost is half a cent for each stamp and your fixed cost is $80,000 per year. If your tax rate is 34%, and your required return is 12% and you bid $.025 for each stamp, what is your NPV? If on the other hand, you must obtain an IRR of 20% from the venture, what price will you bid for each stamp?

Reference no: EM13890267

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