Reference no: EM131933622

Your company has been approached to bid on a 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 Due to technological improvements, beyond that time they will be outdated and no sales will be possible.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 RM13.6 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 RM380,000 to be returned at the end of the project, and the equipment can be sold for the after-tax value of RM1.1 million at the end of production. Fixed costs are RM2.4 million per year, and variable costs are RM700 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 RM1,150. This price is fixed. The tax rate is 25 percent, and the required return is 15 percent. 1. What bid price should you set for the contract? 2. If the president of the company will undertake the project only if it has an NPV of RM500,000, what bid price should you set for the contract?