The owner of a small pipeline construction company is trying to figure out how much he should bid in his attempt to win his first "big" contract. He estimates that his cost to complete the project will be $7.2 million. He wants to bid an amount that will give him an after-tax rate of return of 15% per year if he gets the job, but he doesn't know how much he should bid on a before-tax basis. He told you that his effective state tax rate is 7% and his effective federal tax rate is 22%.

(a) The expression for determining the overall effective tax rate is state rate + (1 – state rate) (federal rate)

What should his before-tax MARR be in order for him to make an after-tax MARR of 15% per year?

(b) How much should he bid on the job?