You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated using straight-line depreciation to a zero book value over the three years. The equipment can be sold at the end of the project for $400,000. You will also need $200,000 in net working capital over the life of the project. The fixed costs will be $475,000 a year and the variable costs will be $140,000 per building. Your required rate of return is 12 percent for this project and your tax rate is 34 percent.
The minimal amount, rounded to the nearest $500 that you should bid per building is 341.500dollars.
*******IF you take the project by bidding an amount that is lower than the minimal amount 341.500;
What is the meaning of this?
You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated using straight-line depreciation to a zero book value over the three years. The equipment can be sold at the end of the project for $400,000. You will also need $200,000 in net working capital over the life of the project. The fixed costs will be $475,000 a year and the variable costs will be $140,000 per building. Your required rate of return is 12 percent for this project and your tax rate is 34 percent.
The minimal amount, rounded to the nearest $500 that you should bid per building is 341.500dollars.
*******IF you take the project by bidding an amount that is lower than the minimal amount 341.500;
What is the meaning of this?