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Romp Enterprises needs someone to supply it with $126,000 cartons of machine screws per year to...

Romp Enterprises needs someone to supply it with $126,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $930,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the projects life. You estimate that, in five years this equipment can be salvaged for $76,000. Your fixed production cost will be $331,000 per year, and your variable production cost should be $10.90 per carton. You also need an initial investment in net working capital of $81,000. If your tax rate is 35 percent and you require a return of 12 percent on your investment, what bid price should you submit?

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ekkarill92 answered 1 year ago
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