Homework Help: Finance

Posted by Nick on Tuesday, April 12, 2011 at 2:23pm.

Union America Corporation (UAC) is planning to bid on a project to supply 150,000 cartons of machine screws per year for 5 years to the US NAvy. In order to produce the machine screws UAC would have to buy some new equipment. The new equipment would cost $780,000 to purchase and install. This equipment would be depriciated straight line to zero over the 5 years of the contract. However, UAC thinks it could sell the equipment for $50,000 at the end of year 5. Fixed production costs will be $240,000 per year, and variable costs of production are $8.50 per carton. UAC would also need an initial investment in Net Working Capital of $75,000 at the begining of this project. UAC has a cost of capital of 16% and a tax rate of 35%. What should be the bid price per carton on this project?

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