Reference no: EM132889502

You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $249,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the three-year project life. Ignore bonus depreciation. The equipment can be sold at the end of the project for $115,000. You will also need $18,000 in net working capital for the duration of the project. The fixed costs will be $37,000 a year and the variable  costs will be $148,000 per park. Your required rate of return is 14 percent and your tax rate is 21 percent.

Problem a) What is the minimal amount you should bid per park?

Problem b) Assume their marketing teams informs them that they cannot bid more then $1,800,000 per building. How much should they reduce variable cost in order to make the bid at $1,800,000?