s project requires the purchase of $900,000 of equipment which will be rate of 30% over the next three years. The equipment can be sold at the 00 (ignore any gains or losses). You plan to borrow half of the equipmer u will also need $200,000 in net working capital maintained over the life osts are expected to be $100,000 per year, fixed costs will be $175,000 a

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 9P
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You are working on a bid to build four small apartment buildings a year for the next three years for a
local community. This project requires the purchase of $900,000 of equipment which will be
depreciated at a CCA rate of 30% over the next three years. The equipment can be sold at the end of
the project for $400,000 (ignore any gains or losses). You plan to borrow half of the equipment cost
at a rate of 5.5%. You will also need $200,000 in net working capital maintained over the life of the
project. The labour costs are expected to be $100,000 per year, fixed costs will be $175,000 a year
and the materials will be $140,000 per building per year. Your required rate of return is 12% for this
project. Ignoring taxes, what is the minimal amount, that you should bid per building?
Transcribed Image Text:You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated at a CCA rate of 30% over the next three years. The equipment can be sold at the end of the project for $400,000 (ignore any gains or losses). You plan to borrow half of the equipment cost at a rate of 5.5%. You will also need $200,000 in net working capital maintained over the life of the project. The labour costs are expected to be $100,000 per year, fixed costs will be $175,000 a year and the materials will be $140,000 per building per year. Your required rate of return is 12% for this project. Ignoring taxes, what is the minimal amount, that you should bid per building?
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