The technique for calculating a bid price can be extended tomany other types of problems. Answer the following questions usingthe same technique as setting a bid price; that is, set the projectNPV to zero and solve for the variable in question. GuthrieEnterprises needs someone to supply it with 145,000 cartons ofmachine screws per year to support its manufacturing needs over thenext five years, and youâve decided to bid on the contract. It willcost $1,850,000 to install the equipment necessary to startproduction; youâll depreciate this cost straight-line to zero overthe projectâs life. You estimate that in five years this equipmentcan be salvaged for $155,000. Your fixed production costs will be$270,000 per year, and your variable production costs should be$9.90 per carton. You also need an initial investment in networking capital of $135,000. The tax rate is 25 percent and yourequire a return of 11 percent on your investment. Assume that theprice per carton is $16.50. a. Calculate the project NPV. (Do notround intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) b. What is the minimum number of cartons peryear that can be supplied and still break even? (Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.) c. What is the highest fixed costs thatcould be incurred and still break even? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
The technique for calculating a bid price can be extended tomany other types of problems. Answer the following questions usingthe same technique as setting a bid price; that is, set the projectNPV to zero and solve for the variable in question. GuthrieEnterprises needs someone to supply it with 145,000 cartons ofmachine screws per year to support its manufacturing needs over thenext five years, and youâve decided to bid on the contract. It willcost $1,850,000 to install the equipment necessary to startproduction; youâll depreciate this cost straight-line to zero overthe projectâs life. You estimate that in five years this equipmentcan be salvaged for $155,000. Your fixed production costs will be$270,000 per year, and your variable production costs should be$9.90 per carton. You also need an initial investment in networking capital of $135,000. The tax rate is 25 percent and yourequire a return of 11 percent on your investment. Assume that theprice per carton is $16.50. a. Calculate the project NPV. (Do notround intermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) b. What is the minimum number of cartons peryear that can be supplied and still break even? (Do not roundintermediate calculations and round your answer to the nearestwhole number, e.g., 32.) c. What is the highest fixed costs thatcould be incurred and still break even? (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
