Sam's Enterprises needs someone to supply it with 10,000 cartons of machine screws per year to...

Transcribed Image Text:

Sam's Enterprises needs someone to supply it with 10,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you have decided to bid on the contract. It will cost you $830,000 to install the equipment necessary to start production. The equipment will be depreciated at $148907.62 cost per year, and you estimate that it can be salvaged for $60,000 at the end of the five-year contract. Your fixed production costs will be $83,000 annually, and your variable production costs should be $15.00 per carton. You also need an initial net working capital of $60,000. If your tax rate is 35% and you require a 12% return on your investment, what bid price should you submit? Sam's Enterprises needs someone to supply it with 10,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you have decided to bid on the contract. It will cost you $830,000 to install the equipment necessary to start production. The equipment will be depreciated at $148907.62 cost per year, and you estimate that it can be salvaged for $60,000 at the end of the five-year contract. Your fixed production costs will be $83,000 annually, and your variable production costs should be $15.00 per carton. You also need an initial net working capital of $60,000. If your tax rate is 35% and you require a 12% return on your investment, what bid price should you submit?

Answer rating: 100% (QA)

To determine the bid price that Sams Enterprises should submit for the contract we need to calculate ... View the full answer