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Smith Enterprise needs someone to supply it with 125,000 cartons of machine screws per year to...

Smith Enterprise needs someone to supply it with 125,000 cartons of machine screws per year to support its manufacturing needs over the next 5 years, and you've decided to bid on the contract. It will cost you $720,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in 5 years, this equipment can be salvaged for $50,000 (before tax). Your fixed production costs will be $285,000 per year, and your variable production costs should be $10.5 per carton. You also need an initial investment in net working capital of $70,000. If your tax rate is 30 percent and you require a 12 percent return on your investment, what is our proper bid price per carton?

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