Tomoya Inc. announced a tender to supply it with 200,000 pcs of DC Motor per year for its manufacturing firm over the next 5 years, and you've decided to bid on the tender. It will cost you $1,200,000 to install the equipment necessary to start production; you will depreciate this cost straight-line to zero over the project's life. You estimate that in 5 years, this equipment can be salvaged for $100,000 (before tax). Your fixed production costs will be $1,000,000 per year, and your variable production costs should be $60 per pcs. You also need an initial investment in net working capital of $200,000 which will be recovered by the end of the project. If your tax rate is 30% and you require a 12% return on your investment, what is your proper bid price per pcs?
Tomoya Inc. announced a tender to supply it with 200,000 pcs of DC Motor per year for its manufacturing firm over the next 5 years, and you've decided to bid on the tender. It will cost you $1,200,000 to install the equipment necessary to start production; you will depreciate this cost straight-line to zero over the project's life. You estimate that in 5 years, this equipment can be salvaged for $100,000 (before tax). Your fixed production costs will be $1,000,000 per year, and your variable production costs should be $60 per pcs. You also need an initial investment in net working capital of $200,000 which will be recovered by the end of the project. If your tax rate is 30% and you require a 12% return on your investment, what is your proper bid price per pcs?
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