Union America Corporation (UAC) is planning to bid on a project to supply 150,000 cartons of machine screws per year for 5 years to the US Navy. 

In order to produce the machine screws UAC would have to buy some new equipment. The new equipment would cost $780,000 to purchase and install. This equipment would be depreciated straight line to zero over the five years of the contract. However, UAC thinks it could sell the equipment for $50,000 at the end of year 5. 

Fixed production costs will be $240,000 per year, and variable costs of production are $8.50 per carton. 

UAC would also need an initial investment in Net Working Capital of $75,000 at the beginning of this project. 

UAC has a cost of capital of 16% and a tax rate of 35%.

What should be the bid price per carton on this project?

Answer rating: 100% (QA)

Total cost fixed costs variable costs working capital Fixed costs per year240000 Variable costs per ... View the full answer