Question
In: Finance
You will bid to supply 5 Navy Destroyers per year for each of the next three...
You will bid to supply 5 Navy Destroyers per year for each of the next three years to the U.S. Navy. To get set up you will need $90 million in equipment, to be depreciated straight-line to zero over the next three years, with no salvage value. Total fixed costs per year are $10 million, and variable costs are $15 million per Destroyer. Assume a tax rate of 35 percent and a required return of 12 percent. What are total costs per year associated with this Navy Project? $10,000,000 $15,000,000 $75,000,000 $85,000,000 $92,000,000
Solutions
Expert Solution
Total Cost = $ 85,000,000
Working:
Calculation of Total Cost per year:
Total Cost per year = Fixed Cost Per year + Variable Cost per year
(given in ques,
Fixed Cost per year = $10 million = $ 10,000,000
Variable Cost = $ 75,000,000 [WN1])
So, Total Cost per year = 10,000,000 + 75,000,000
Therefore,
Total Cost per year = $ 85,000,000
WN 1:
Calculation of Variable Cost per year:
Variable Cost per year = Variable cost per destroyer x Number of Destroyers
(given in ques,
Variable cost per destroyer = $ 15 million = $ 15,000,000
Number of Destroyers = 5 )
So, Variable Cost per year = $ 15,000,000 x 5
Therefore,
Variable Cost per year = $ 75,000,000
jeff jeffy answered 2 years agoRelated Solutions
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