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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To solve the bid price problem presented in the text, we set the
project NPV equal to zero and found the required price using the
definition of OCF. Thus the bid price represents a financial
break-even level for the project. This type of analysis can be
extended to many other types of problems.
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To solve the bid price problem presented in the text, we set the
project NPV equal to zero and found the required price using the
definition of OCF. Thus the bid price represents a financial
break-even level for the project. This type of analysis can be
extended to many other types of problems.
Martin Enterprises needs
someone to supply it with 140,000 cartons of machine screws per
year to support its manufacturing needs over the next five years,
and you’ve...

To solve the bid price problem presented in the text, we set the
project NPV equal to zero and found the required price using the
definition of OCF. Thus the bid price represents a financial
break-even level for the project. This type of analysis can be
extended to many other types of problems.
Martin Enterprises needs
someone to supply it with 134,000 cartons of machine screws per
year to support its manufacturing needs over the next five years,
and you’ve...

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you’ll depreciate this cost straight-line to zero over the
project’s life. You estimate that, in five years, this equipment
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