Your company has been approached to bid on a contract to sell 4,950 voice recognition (VR)...

 

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Your company has been approached to bid on a contract to sell 4,950 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $410,000 which will be returned at the end of the project, and the equipment can be sold for $335,000 at the end of production. Fixed costs are $585,000 per year, and variable costs are $78 per unit. In addition to the contract, you feel your company can sell 12,000, 14,100, 18,200, and 10,700 additional units to companies in other countries over the next four years, respectively, at a price of $179. This price is fixed. The tax rate is 23 percent, and the required return is 11 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $150,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price Your company has been approached to bid on a contract to sell 4,950 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $3.4 million and will be depreciated on a straight- line basis to a zero salvage value. Production will require an investment in net working capital of $410,000 which will be returned at the end of the project, and the equipment can be sold for $335,000 at the end of production. Fixed costs are $585,000 per year, and variable costs are $78 per unit. In addition to the contract, you feel your company can sell 12,000, 14,100, 18,200, and 10,700 additional units to companies in other countries over the next four years, respectively, at a price of $179. This price is fixed. The tax rate is 23 percent, and the required return is 11 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $150,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bid price

Answer rating: 100% (QA)

To find the bid price for the contract we need to calculate the projects net present value NPV and set the bid price such that the NPV meets the presidents requirement of 150000 The NPV of the project ... View the full answer