Use the Price Bidding exercise for this question Assume the variable cost of producing the cartons of precision machine screws is $9 and all other assumptions remain the same What is the new minimum price for your bid Assumptions Assumptions Cost of Capital 16 Cost of Capital Tax Rate 35 Tax Rate Unit Sales 150,000 Unit Sales Price per Unit $ 12 11 Price per Unit Cost Per Unit $ 8 50 Cost Per Unit Sales Growth 0 Sales Growth Capital Expenditure $ 780,000 Capital Expenditure Annaul Depreciation $ 156,000 Annaul Depreciation Year 1 2 3 4 Year Unit Sales 150,000 150,000 150,000 150,000 Unit Sales Sales VALUE VALUE VALUE VALUE Sales Cost of Sales $ 1,275,000 $ 1,275,000 $ 1,275,000 $ 1,275,000 Cost of Sales Gross Profit VALUE VALUE VALUE VALUE Gross Profit Selling, General Admin 240,000 $ 240,000 $ 240,000 $ 240,000 neral Admin Depreciation S 156,000 $ 156,000 $ 156,000 $ 156,000 Depreciation EBIT VALUE VALUE VALUE VALUE EBIT Income Tax VALUE VALUE VALUE VALUE Income Tax Unlevered Net Income VALUE VALUE VALUE VALUE red Net Income Add Back Depreciation S 156,000 $ 156,000 $ 156,000 $ 156,000 ck Depreciation Subtract Capital Exp $ (780,000) $ Fact Capital Exp Subtract Change in NWC $ (75,000) $ Change in NWC of ch WAITICI WAITICI WAITICI WAITICI Cran fach Clou PV(Cash Flow Impact of capital PV(Cash Flow Impact of capital expenditure) $ (780,000) expenditure) Present value $ 134,483 $ 115,933 $ 99,943 $ 86,157 Present value PV(depreciation) $ 436,516 PV(depreciation) NPV PV(cash flow impact of capital NPV PV(cash expenditure) flow impact of PV(cash flow impact of change in NWC) capital PV(cash flow impact of net income and expenditure) depreciation) 0 Economic break even requires NPV 0 PV(cash flow PV(cash flow impact of net income) $ 418,484 which is PV(unlevered net income from Year 1 to 5) PV(ca Denote unlevered net income by letter C, then PV(unlevered net income from Year 1 to 5) C Present Value Annuity Facto Deno PV(Annuity) Present Value Annuity Factor 1 r (1 1 (1 r) N), where r 0 16, N 5 Pres VALUE Unlevered net income VALUE Unlevered net income

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Use the Price Bidding exercise for this question  Assume the variable cost of producing the cartons of precision machine screws is $9 and all other assumptions remain the same  What is the new minimum price for your bid  Assumptions Assumptions Cost of Capital   16  Cost of Capital   Tax Rate   35  Tax Rate   Unit Sales   150,000 Unit Sales   Price per Unit  $ 12 11 Price per Unit  Cost Per Unit   $ 8 50 Cost Per Unit   Sales Growth   0  Sales Growth   Capital Expenditure $ 780,000 Capital Expenditure Annaul Depreciation   $ 156,000 Annaul Depreciation Year 1 2 3 4 Year Unit Sales 150,000 150,000 150,000 150,000 Unit Sales Sales  VALUE   VALUE   VALUE   VALUE  Sales Cost of Sales $ 1,275,000 $ 1,275,000 $ 1,275,000 $ 1,275,000 Cost of Sales Gross Profit  VALUE   VALUE   VALUE   VALUE Gross Profit Selling, General   Admin  240,000 $ 240,000 $ 240,000 $ 240,000 neral   Admin  Depreciation S 156,000 $ 156,000 $ 156,000 $ 156,000 Depreciation EBIT  VALUE   VALUE   VALUE   VALUE EBIT Income Tax  VALUE   VALUE   VALUE   VALUE  Income Tax Unlevered Net Income  VALUE   VALUE   VALUE   VALUE  red Net Income Add Back Depreciation S 156,000 $ 156,000 $ 156,000 $ 156,000 ck Depreciation Subtract Capital Exp $ (780,000) $ Fact Capital Exp Subtract Change in NWC $ (75,000) $ Change in NWC   of ch  WAITICI  WAITICI  WAITICI  WAITICI Cran fach Clou PV(Cash Flow Impact of capital PV(Cash Flow Impact of capital expenditure) $ (780,000) expenditure) Present value $ 134,483 $ 115,933 $ 99,943 $ 86,157 Present value PV(depreciation) $ 436,516 PV(depreciation) NPV   PV(cash flow impact of capital NPV   PV(cash expenditure) flow impact of PV(cash flow impact of change in NWC) capital   PV(cash flow impact of net income and expenditure) depreciation) 0 Economic break even requires NPV 0   PV(cash flow PV(cash flow impact of net income) $ 418,484 which is PV(unlevered net income from Year 1 to 5) PV(ca Denote unlevered net income by letter C, then PV(unlevered net income from Year 1 to 5)   C   Present Value Annuity Facto Deno PV(Annuity)  Present Value Annuity Factor  1 r   (1 1 (1 r) N), where r 0 16, N 5 Pres  VALUE  Unlevered net income  VALUE  Unlevered net income

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Question: Use the Price-Bidding exercise for this question. Assume the variable cost of producing the cartons of precision machine screws is $9 and all other assumptions

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