Seatcraft SA wants to supply luxury seats to AMC Theaters for an upscale movie-going experience post-pandemic. This would be 10,000 seats per year for each of the next 8 years. Seatcraft would need to spend $30 million in capital expenditures initially and incur an initial NWC investment of $5 million. The capital equipment has a useful life of 10 years. Investments of $100,000 per year in NWC will be needed over the life of the project?

It will cost $1 million per year to lease floor space and $1.5 million per year to maintain the equipment. The equipment will be sold for $5 million at the end of the project. Labor and raw materials combined total $300 per seat. Let the tax rate be 20% and the cost of capital be 7%. Using straight line depreciation, how much does Seatcraft bid for the contract per seat?

Answer rating: 100% (QA)

To determine the bid price per seat we need to calculate the total cost of the project including the ... View the full answer