Question

the technique for calculating a bid price can be extended to many other types of problems....

the technique for calculating a bid price can be extended to many other types of problems. answer the following questions using the same technique as setting a bid price; that is, set the project NVP to zero and solve for the variable in question. Guthrie Enterprises needs someone to supply it with 160099 cartons of machine screws per year to support its manufacturing needs over the next five years, and you"'ve decided to bid on the contract. it will cost 2000000 to install the equipment necessary to start production; you"'ll depreciate this cost straight-line to zero over the project's life, You estimate that in five years that equipment can be salvaged for 170,000. Your fixed production costs will be 285000 per year, and your variable production costs should be 11.40 per carton. You also need an initial investments in net working capital of 150000. the tax rate is 25 percent and you require a return of 14 percent on your investment. assume the,price per carton is 18.00.

Npv=
quantity of cartoons=
fixed cost=

Homework Answers

Answer #1

1.
NPV=-2000000-150000+170000*(1-25%)/1.14^5+150000+((160099*(18.00-11.40)-285000-2000000/5)*(1-25%)+2000000/5)/14%*(1-1/1.14^5)=396389.0532

2.
Let quantity be q
-2000000-150000+170000*(1-25%)/1.14^5+150000+((q*(18.00-11.40)-285000-2000000/5)*(1-25%)+2000000/5)/14%*(1-1/1.14^5)>=0
=>q>=136773.4224

3.
Let fixed costs per year be f
-2000000-150000+170000*(1-25%)/1.14^5+150000+((160099*(18.00-11.40)-f-2000000/5)*(1-25%)+2000000/5)/14%*(1-1/1.14^5)>=0
=>f<=438948.8123

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