Question

Now work the same problem changing a few things…….Cougar Athletics is soliciting bids on a 3-year contract to produce 3,000 t-shirts per year to be given away at athletic events. You have decided to bid on the contract. It will cost you $3 per shirt in variable costs (buying plain t-shirts and paying an employee to imprint them) and $6,000 per year in fixed costs. A t-shirt printing machine will cost $7,500. The machine will be depreciated to zero over its 3-year life and it will not have any salvage value. There are no net working capital implications for the project. If your tax rate is 30% and your required return on this project is 15%, how much would you bid for the contract? State your answer in the total price, not the per-unit price. Now suppose you are offered the deal in question 1 for a price of $6 per shirt. What is the project’s NPV?

This is answer but I do not know how to get this NPV.

Sales 18000-VC 9000-FC 5000-D 2500=EBIT 1500 -Taxes 300=NI 1200 OCF 3700 NPV $1,701.35

Answer 1

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