Consider a project to supply 1 0 0 million postage stamps per year to the U .
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Question:
Consider a project to supply million postage stamps per year to the US Postal Service for the next five years. You have an idle parcel of land available that cost $ five years ago; if the land were sold today, it would net you $ million aftertax. The land can be sold for $ million after taxes in five years. You will need to install $ million in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straightline to zero over the projects fiveyear life. There is no depreciation for the land. The equipment can be sold for $ at the end of the project. You will also need $ in initial net working capital for the project, and an additional investment of $ in every year thereafter ie each years net working capital will be $ higher than the
previous year, such that the Year level is $ the Year level will be
$$ the Year level will be $$ and so on Your production costs are cents per stamp, and you have fixed costs of $ million per year. If your tax rate is percent and your required return on this project is percent, what bid price should you submit on the contract?
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