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What bid price should you submit

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Guthrie Enterprises needs someone to supply it with 145,000 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 $3 million to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. The market value of the retired machine is zero. Your production costs will be $1,955,000 per year. You also need an initial investment in net working capital of $325,000, which will be fully recovered in the end of the project. If your tax rate is 20 percent and you require a 10 percent return on your investment, what bid price should you submit?

Reference no: EM132556917

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