The technique for calculating a bid price can be extended to many other types ofproblems. Answer the following questions using the same technique as setting a bldprice; that is, set the project NPV to zero and solve for the variable in question. MartinEnterprises needs someone to supply it with 145,000 cartons of machine screws peryear to support its manufacturing needs over the next five years, and you've decided tobild on the contract. It will cost $1,850,000 to Install the equipment necessary to startproduction, you'll depreciate this cost straight-line to zero over the project's life. Youestimate that, in five years, this equipment can be salvaged for $155,000. Your fixedproduction costs will be $270,000 per year, and your varlable production costs shouldbe $9.90 per carton. You also need an initial Investment in net working capital of$135,000. The tax rate is 25 percent and you require a return of 11 percent on yourInvestment. Assume that the price per carton is $16.50.a. Calculate the project NPV. (Do not round Intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)b. What is the minimum number of cartons per year that can be supplied and still breakeven? (Do not round Intermediate calculations and round your answer to thenearest whole number, e.g., 32.)c. What are the highest fixed costs that could be incurred and still break even? (Do notround Intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.)a NPVb. Minimum cartonsc. Highest fixed costsPrav#5

NPV is most used capital budgeting method based time value of money and is the financial break even…

The technique for calculating a bid price can be extended to any problems. Answer the following questions using the same technique as setting a bid price: that is, set the project NPV to zero and solve for the variable in question. Martin Enterprises needs someone to supply it with 145,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost $1,850,000 to Install the equipment necessary to start production, you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $155,000. Your fixed production costs will be $270,000 per year, and your variable production costs should be $9.90 per carton. You also need an initial Investment in net working capital of $135,000. The tax rate is 25 percent and you require a return of 11 percent on your Investment. Assume that the price per carton is $16.50. a. Calculate the project NPV. (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the minimum number of cartons per year that can be supplied and still break even? (Do not round Intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What are the highest fixed costs that could be incurred and still break even? (Do not round Intermediate calculations and round your answer to 2 decimal places, e.g.. 32.16.) a NPV b. Minimum cartons c. Highest fixed costs

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...