Consider a project to supply 102 million postage stamps per year to the U.S. Postal Service for the next fiveyears. You have an idle parcel of land available that cost $1,920,000 five years ago; if the land were soldtoday, it would net you $2,120,000 aftertax. The land can be sold for $2,320,000 after taxes in five years.You will need to install $5.42 million in new manufacturing plant and equipment to actually produce thestamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life.The equipment can be sold for $520,000 at the end of the project. You will also need $620,000 in initial networking capital for the project, and an additional investment of $52,000 in every year thereafter. Yourproduction costs are 0.52 cents per stamp, and you have fixed costs of $1,070,000 per year. If your tax rateis 30 percent and your required return on this project is 10 percent, what bid price should you submit on thecontract? (Do not round intermediate calculations and round your final answer to 5 decimal places.(e.g., 32.16161))Bid price0.0446965

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Asked Oct 17, 2019
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Consider a project to supply 102 million postage stamps per year to the U.S. Postal Service for the next five
years. You have an idle parcel of land available that cost $1,920,000 five years ago; if the land were sold
today, it would net you $2,120,000 aftertax. The land can be sold for $2,320,000 after taxes in five years.
You will need to install $5.42 million in new manufacturing plant and equipment to actually produce the
stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life.
The equipment can be sold for $520,000 at the end of the project. You will also need $620,000 in initial net
working capital for the project, and an additional investment of $52,000 in every year thereafter. Your
production costs are 0.52 cents per stamp, and you have fixed costs of $1,070,000 per year. If your tax rate
is 30 percent and your required return on this project is 10 percent, what bid price should you submit on the
contract? (Do not round intermediate calculations and round your final answer to 5 decimal places.
(e.g., 32.16161))
Bid price
0.0446965
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Consider a project to supply 102 million postage stamps per year to the U.S. Postal Service for the next five years. You have an idle parcel of land available that cost $1,920,000 five years ago; if the land were sold today, it would net you $2,120,000 aftertax. The land can be sold for $2,320,000 after taxes in five years. You will need to install $5.42 million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's five-year life. The equipment can be sold for $520,000 at the end of the project. You will also need $620,000 in initial net working capital for the project, and an additional investment of $52,000 in every year thereafter. Your production costs are 0.52 cents per stamp, and you have fixed costs of $1,070,000 per year. If your tax rate is 30 percent and your required return on this project is 10 percent, what bid price should you submit on the contract? (Do not round intermediate calculations and round your final answer to 5 decimal places. (e.g., 32.16161)) Bid price 0.0446965

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A Particulars Amount Formulas 1 S 102,000,000.00 2 Unit Sales 3 S 1,070,000.00 4 Fixed costs 5 Add: Variable cost 530,400.00 0.0052 B2 6 Add: Depreciation S 1,090,000.00 2,690,400.00 5450000/5 7 Total cost SUM(B4B6) 9 Capital spending 10 Land S 5,420,000.00 2,120,000.00 11 Net working capital 12 Total cash outflow 620,000.00 S 8,160,000.00 SUM(B9B11) 13 14 Capital spending 15 Land 364,000.00 520000*(1-30%) S 2,320,000.00 828,000.00 620000+(52000*4) $ 3,512,000.00 S 2,180,675.69 16 Net working capital 17 Terminal cash flow SUM(B14B16) 19 PV of terminal cash flow B17/(1+10%)^5 20 21 Annual cash outflow from NWC S 22 PV of annual NWC 52,000.00 164,833.00 PV(10%,4,B21) 23 S 6,144,157.32 24 Net present value without OCF B12-B19+B22 25 26 Annual operating cash flow 1,620,813.22 B24/(-PV(10%,5,1)) 27 28 Net income 530,813.22 B26-B6 29 30 Earnings before interest and tax B28/(1-30%) 758,304.60

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