Last month your company posted $100,000 with Contracts-R-Us to get approved to bid on contracts via...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Last month your company posted $100,000 with Contracts-R-Us to get approved to bid on contracts via their website. Trump Enterprises is looking for a supplier of red baseball caps, and your boss wants you to bid on the contract. The company requires 115,000 baseball caps per year over the next five years. You estimate that the necessary equipment will cost $820,000, and the equipment will be depreciated straight-line to zero over the project's life. You believe this equipment can be sold for $65,000 at the end of the project. You further estimate the fixed costs to be $320,000 per year, and the variable production costs to be $9.80 per hat. You'll need an initial investment in net working capital of $70,000, but this will be recovered at the end of the project. Your tax rate is 35 percent and you require a return of 12 percent on your investment. What is the lowest bid price (per unit) you should submit (i.e. price where NPV=0)? Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV = 0. Part B: Now calculate the bid price. Last month your company posted $100,000 with Contracts-R-Us to get approved to bid on contracts via their website. Trump Enterprises is looking for a supplier of red baseball caps, and your boss wants you to bid on the contract. The company requires 115,000 baseball caps per year over the next five years. You estimate that the necessary equipment will cost $820,000, and the equipment will be depreciated straight-line to zero over the project's life. You believe this equipment can be sold for $65,000 at the end of the project. You further estimate the fixed costs to be $320,000 per year, and the variable production costs to be $9.80 per hat. You'll need an initial investment in net working capital of $70,000, but this will be recovered at the end of the project. Your tax rate is 35 percent and you require a return of 12 percent on your investment. What is the lowest bid price (per unit) you should submit (i.e. price where NPV=0)? Part A: Start by calculating the operating cash flow that, when received as an annuity for 5 years, would set the NPV = 0. Part B: Now calculate the bid price.
Expert Answer:
Answer rating: 100% (QA)
SOLUTION Part A To find the operating cash flow that would set the NPV equal to zero we need to calc... View the full answer
Related Book For
College Accounting
ISBN: 978-1111528126
11th edition
Authors: Tracie Nobles, Cathy Scott, Douglas McQuaig, Patricia Bille
Posted Date:
Students also viewed these accounting questions
-
The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV...
-
A. With reference to the following table, indicate what happens if a) 6W are exchanged for 9C b) 6W are exchanged for 3C or c) 6W are exchanged for 12C. US UK Wheat 1 (Units/Labour) Cloth 2...
-
The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV...
-
For rigid-body motion, the strains will vanish. Under these conditions, integrate the straindisplacement relations (7.6.1) to show that the most general form of a rigid-body motion displacement field...
-
Show the structures of the likely fragments you would expect in the mass spectra of the followingmolecules: (a) (b)
-
The drive shaft of the motor is made of a material having an allowable shear stress of allow = 80 MPa. If the motor is to deliver a power of 15 kW, determine the required minimum outer diameter and...
-
How to use social media sites for evidence in court?
-
Twelve tasks, with times and precedence requirements as shown in the following table, are to be assigned to workstations using a cycle time of 1.5 minutes. Two heuristic rules will be tried: (1)...
-
1.What is the break-even (NPV=0) annual incremental sales for the following investment? Initial investment at time t=0 is $2,400,000 Life of project is 12 years Initial investment depreciated to $0...
-
How can I find the exact p-value for each coefficient (p>t )column if the number of observations = 52, df numerator is 3, df denominator is 48, t static is there in the third column. I need to know...
-
Compute the present value, P, for the following cash flows. 4500 3000 i = 10% 1500
-
Find the magnitude of the resultant force and the angle it makes with the positive x-axis. (Let a = 200 N and b = 500 N. Round your answers to one decimal place.) magnitude 435.9 N angle 40.9 Need...
-
Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. Date Activities Units Acquired at Cost Units Sold at Retail March 1...
-
Pharoah Corporation was organized on January 1 , 2 0 2 3 , with 3 9 9 0 0 0 no par value common shares authorized. During 2 0 2 3 , the corporation had the following share transactions: Jan. 5 Issued...
-
Based on the synopsis of the LeadClick case. Who has or should have primary responsibility for managing fake news and its consequences (i.e., social media companies, advertising companies,...
-
Classic Loungers is in the process of preparing a production cost budget for August. Actual costs in July for 200 chaise lounge chairs were: Materials cost $ 6,000 Labor cost 8,000 Rent 2,000...
-
You are looking at investing in undeveloped land that you expect might be worth $1902621 in 5 years. Based on the risk of the property, you require a return of 10.58%. What is the most you should be...
-
Provide an example of an aggressive accounting practice. Why is this practice aggressive?
-
What account titles would you suggest for the chart of accounts for a city touring company owned by W. Sanders? List the accounts by account category and include an appropriate account number for...
-
Baylor Companys beginning inventory of D520 is 150 units at a cost of $ 89 each. Dates of purchases and sales for a three-month period are as follows: Baylor Company maintains a perpetual inventory...
-
Friday is the senior member of the partnership of Friday, Horning, and Jerome. When Friday dies, the firms accountant revalues the assets. The following assets are to be increased in value by these...
-
__________________ inside the potable water tank(s) pushes the water through distribution lines to the lavatories and galleys.
-
Pneumatic power may be used to back-up hydraulic system components without loss of performance by turning a __________________ pump.
-
What is used to heated potable water on passenger aircraft?
Study smarter with the SolutionInn App