To solve the bid price problem presented in the text, we set the project NPV equal...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. Martin Enterprises needs someone to supply it with 144,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $1,005,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $142,000. Your fixed production costs will be $580,000 per year, and your variable production costs should be $19.25 per carton. You also need an initial investment in net working capital of $128,000. Assume your tax rate is 24 percent and you require a return of 11 percent on your investment. a. Assuming that the price per carton is $29.80, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assuming that the price per carton is $29.80, find the quantity of cartons per year that you can supply and still break even. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. Assuming that the price per carton is $29.80, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. NPV b. Break-even number of cartons c. Break-even fixed costs To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. Martin Enterprises needs someone to supply it with 144,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you've decided to bid on the contract. It will cost you $1,005,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that, in five years, this equipment can be salvaged for $142,000. Your fixed production costs will be $580,000 per year, and your variable production costs should be $19.25 per carton. You also need an initial investment in net working capital of $128,000. Assume your tax rate is 24 percent and you require a return of 11 percent on your investment. a. Assuming that the price per carton is $29.80, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assuming that the price per carton is $29.80, find the quantity of cartons per year that you can supply and still break even. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. Assuming that the price per carton is $29.80, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. NPV b. Break-even number of cartons c. Break-even fixed costs
Expert Answer:
Answer rating: 100% (QA)
To calculate the NPV of the project we need to calculate the cash flows for each year and discount them to the present value Given Initial investment ... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
Posted Date:
Students also viewed these finance questions
-
To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial...
-
To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial...
-
March is a month of variable weather in the Northeast. The chart below records the actual high and low temperatures for a selection of days in March from the weather report for Pittsburgh,...
-
What are the common characteristics shared by many exempt organizations?
-
Hyundais Global Command and Control Center (GCCC) have cameras strategically placed across its centers to monitor assembly lines. This helps identify problems and respond quickly. What drives Hyundai...
-
Refer to information in QS 21-14. Compute the overhead volume variance for November and classify it as favorable or unfavorable. Data From QS 21-14 AirPro Corp. reports the following for November....
-
Cepeda Corporation has the following cost records for June 2014. Instructions (a) Prepare a cost of goods manufactured schedule for June 2014. (b) Prepare an income statement through gross profit for...
-
Data manipulation language (DML) provides a number of capabilities that allow you to build custom queries of existing data. What are two capabilities you might use to limit the data you select or...
-
Locate the exemption statutes of the state of Texas and compare them with the federal exemptions set forth in 522(d) of the Code. Which appears more generous to debtors? Which appears more reasonable...
-
The marketing research department for a company that manufactures and sells computers established the following price-demand and cost functions. p(x)=2214-64x where p(x) is the wholesale price per...
-
Summarize the following/Write in your own words: "Net cash used in investing activities for Fiscal 2023 decreased to $999.4 million for Fiscal 2023 from $1,035.8 million for Fiscal 2022. This...
-
Box Ca. has a balance in the alowance for doubtful debts account of $8,020 Credit. Before the adjustment at the year ended 30 June 2022, no bad debts are expected to be recovered. Aged Schedals of...
-
Calculate the surface energy of the (100) face of a bcc material whose nearest-neighbor distance is 4 and whose cohesive energy between the atoms is = 1.5 eV/atom. Use the bond-breaking model and...
-
(a) Let p be an odd prime and G a group of order 2p. Show that G is either cyclic i. e. G=Z, or G = Dp. What can you deduce from this result? (b) Let G be a group with subgroups H and K such that HK...
-
When Olivia P. Rae talks, people listen. As a talk show host on her nationally-syndicated television program, The O Show, Olivia reaches approximately thirty (30) million viewers each week. Her...
-
A company pledges their receivables so they may Multiple Choice Charge a factoring fee. Increase sales. Recognize a sale. Collect a pledge fee. Borrow money. Failure by a promissory notes' maker to...
-
Product Sales Do you think the company would have suffered the same fate if its product had been less popular? Why or why not?
-
Yield to Maturity treasury bid and ask quotes are sometimes given in terms of yields, so there would be a bid yield and an ask yield. Which do you think would be larger? Explain.
-
Inventory Costs if a companys inventory carrying costs are $5 million per year and its fixed order costs are $8 million per year, do you think the firm keeps too much inventory on hand or too little...
-
Blades of grass grow from the bottom, so, as growth occurs, the top of the blade moves upward. During the summer, when your lawn is growing quickly, estimate this speed, in m/s. Make this estimate...
-
A circular test track for cars in England has a circumference of 3.2 km. A car travels around the track from the southernmost point to the northernmost point. a. What distance does the car travel? b....
-
Estimate the average speed, in m/s, with which the hair on your head grows. Make this estimate from your own experience noting, for instance, how often you cut your hair and how much you trim....
Study smarter with the SolutionInn App