Baghiben Consider a project to supply 92 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$1,665,000 five years ago; if the land were sold today, it would net you $1,740,000aftertax. The land can be sold for $1,740,000 after taxes in five years. You will need toinstall $4.95 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 $505,000 at the end of theproject. You will also need $535,000 in initial net working capital for the project, and anadditional investment of $42,000 in every year thereafter. Your production costs are .40cents per stamp, and you have fixed costs of $970,000 per year. If your tax rate is 23percent and your required return on this project is 10 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:The bid price in a financial context refers to the maximum price a buyer is willing to…

Answered: Consider a project to supply 92 million…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

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Chapter5: The Time Value Of Money

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Problem 40P

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