To solve the bid price problem presented in the text, we set theproject NPV equal to zero and found the required price using thedefinition of OCF. Thus the bid price represents a financialbreak-even level for the project. This type of analysis can beextended to many other types of problems. Romo Enterprises needssomeone to supply it with 113,000 cartons of machine screws peryear to support its manufacturing needs over the next five years,and youâve decided to bid on the contract. It will cost you$800,000 to install the equipment necessary to start production;youâll depreciate this cost straight-line to zero over theprojectâs life. You estimate that, in five years, this equipmentcan be salvaged for $63,000. Your fixed production costs will be$318,000 per year, and your variable production costs should be$9.60 per carton. You also need an initial investment in networking capital of $68,000. Assume your tax rate is 34 percent andyou require a 10 percent return on your investment. a. Assumingthat the price per carton is $16.30, what is the NPV of thisproject? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.) NPV $ b. Assuming thatthe price per carton is $16.30, find the quantity of cartons peryear you need to supply to break even. (Do not round intermediatecalculations and round your answer to nearest whole number.)Quantity of cartons c. Assuming that the price per carton is$16.30, find the highest level of fixed costs you could afford eachyear and still break even. (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.) Fixedcosts $
To solve the bid price problem presented in the text, we set theproject NPV equal to zero and found the required price using thedefinition of OCF. Thus the bid price represents a financialbreak-even level for the project. This type of analysis can beextended to many other types of problems. Romo Enterprises needssomeone to supply it with 113,000 cartons of machine screws peryear to support its manufacturing needs over the next five years,and youâve decided to bid on the contract. It will cost you$800,000 to install the equipment necessary to start production;youâll depreciate this cost straight-line to zero over theprojectâs life. You estimate that, in five years, this equipmentcan be salvaged for $63,000. Your fixed production costs will be$318,000 per year, and your variable production costs should be$9.60 per carton. You also need an initial investment in networking capital of $68,000. Assume your tax rate is 34 percent andyou require a 10 percent return on your investment. a. Assumingthat the price per carton is $16.30, what is the NPV of thisproject? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.) NPV $ b. Assuming thatthe price per carton is $16.30, find the quantity of cartons peryear you need to supply to break even. (Do not round intermediatecalculations and round your answer to nearest whole number.)Quantity of cartons c. Assuming that the price per carton is$16.30, find the highest level of fixed costs you could afford eachyear and still break even. (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.) Fixedcosts $
