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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

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

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 16P: Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of...
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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
Transcribed Image Text: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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