Guthrie Enterprises needs someone to supply it with 135,000cartons of machine screws per year to support its manufacturingneeds over the next five years, and you’ve decided to bid on thecontract. It will cost $1,900,000 to install the equipmentnecessary to start production; you’ll depreciate this coststraight-line to zero over the project’s life. You estimate that infive years this equipment can be salvaged for $145,000. Your fixedproduction costs will be $630,000 per year, and your variableproduction costs should be $8.91 per carton. You also need aninitial investment in net working capital of $300,000. If your taxrate is 22 percent and you require a 11 percent return on yourinvestment, what bid price per carton should you submit?
