A firm is considering bidding on a project to produce eight

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Reference no: EM13385357

A firm is considering bidding on a project to produce eight widgets per year for the next four years. In order to complete the project, the firm must lease facilities for $30,000 per year, purchase equipment that costs $100,000, as well as pay labour and material costs of $19,000 per unit produced. The equipment can be depreciated at the Class 8 CCA rate of 20%. At the end of the fourth year, it can be sold for $10,000, and the asset class will remain open after the disposal of the equipment. In addition, net working capital will increase by $50,000 if the project is undertaken, but these can be recovered at the end of the project. The company’s tax rate is 40%.
What is the minimum bid per widget if the firm requires 18% return on its investment?

Reference no: EM13385357

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