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"Calculating a bid price. Your company has been ap...

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"Calculating a bid price. Your company has been approached to bid on the contract to sell 17,500 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 Due to technological improvements, beyond that time they will be outdated and no sales will be possible.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 $95,000to be returned at the end of the project, and the equipment can be sold for $275,000 at the end of the production. Fixed costs are $600,000 per year, and variable costs are $175 per unit. In addition to the contract, you feel your company can sell 3,000, 6,000, 8,000, and 5,000 additional units to companies in other countries over the next four years, respectively, at a price of $285. The price is fixed. The tax rate is 40%, and the required return is 13%. Additionally, the president of the company will undertake the project only if it has an NPV of $100,000. What bid should you set for the contract? Show your calculations. "

 

Paper#10285 | Written in 18-Jul-2015

Price : $25
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