Consider a project to supply 103 million postage stamps per year to the U.S. PostalService for the next five years. You have an idle parcel of land available that cost$1,720,000 five years ago; if the land were sold today, it would net you $1,795,000aftertax. The land can be sold for $1,751,000 after taxes in five years. You will need toinstall $5.5 million in new manufacturing plant and equipment to actually produce thestamps; this plant and equipment will be depreciated straight-line to zero over theproject's five-year life. The equipment can be sold for $670,000 at the end of theproject. You will also need $590,000 in initial net working capital for the project, and anadditional investment of $53,000 in every year thereafter. Your production costs are .51cents per stamp, and you have fixed costs of $1,080,000 per year. If your tax rate is 24percent and your required return on this project is 9 percent, what bid price should yousubmit on the contract? (Do not round intermediate calculations and round youranswer to 5 decimal places, e.g., 32.16161.)Bid price

Bid price should include all cost including variable cost and fixed cost and also initial investment…

Answered: Consider a project to supply 103…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 40P

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