What is the bid price for the following situation: you have been approached by. A client interested
Question:
What is the bid price for the following situation: you have been approached by. A client interested in buying 110,000 widgets a year from you for 5 years and has asked you to submit a bid for his consideration. To be able to produce these widgets, you need to invest in $250,00 in equipment. The equipment has a taxable life of 10 years and will be depreciated using a straight-line, at the end of the 5 year, the equipment can be sold for 50,000 (market or scrap value). The variable cost of producing the widgets is $10 per unit and you will incur in a fixed cost of $60,000. You have estimated you will need $ 50,000 today in working capital. The appropriate discounting rate for this type of project is 10%. The corporate tax rate applicable to you in this case is 40%. What is the minimum price you would charge for each widget (bid price to be given by you to the client)?
Introduction To Federal Income Taxation In Canada
ISBN: 9781554965021
33rd Edition
Authors: Robert E. Beam, Stanley N. Laiken, James J. Barnett