five-year life. The equipment can be sold for $400,000 at the end of the project. Intermediate

You will also need $600,000 in initial net working capital for the project, and an (continued)

additional investment of $50,000 in every year thereafter. Your production costs are 0.6 cents per stamp, and you have fixed costs of $600,000 per year. If your tax rate is 34 percent and your required return on this project is 15 percent, what bid price should you submit on the contract?

24. Interpreting a Bid Price In the previous problem, suppose you were going to use a three-year MACRS depreciation schedule for your manufacturing equipment, and that you felt you could keep working capital investments down to only $25,000 per year. How would this new information affect your calculated bid price?

25. Project Evaluation Aguilera Acoustics (AAI), Inc., projects unit sales for a Challenge new 7-octave voice emulation implant as follows: (Questions 25-27)


Unit Sales

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