Joseph Production Company is bidding a 10-year contract to provide the customer with 4,000 units of product per year. Their accounting department has estimated a labor and material costs of $30 per unit. An initial capital investment of $1,000,000 is required. The equipment belongs to CCA class 43. Initial net working capital of $50,000 is also needed. The firm must pay factory lease expenses of $50,000 per year. Equipment maintenance expenses are projected to be $30,000 per year. Both lease expenses and maintenance expenses are payable at the end of the year. At the end of the contract, the capital equipment can be sold for $20,000. The firm has a tax rate of 40% and a required return rate of 15%.

Please: Determine the before tax unit price Joseph should bid for this contract. Round the unit price to the nearest dollar. Show all calculations using excel, show formulas and explanation.

Answer rating: 100% (QA)

First lets calculate the total cost of producing 4000 units of the product per year The labor and ma... View the full answer