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The Sunlight company is bidding for a federal contract delivering 100,000 customized steel plates with electronic sensors per year for five years for...
The Sunlight company is bidding for a federal contract delivering 100,000 customized steel plates withelectronic sensors per year for five years for a major infrastructure project. The equipment to generate theplates will costs approximately $500,000 and require working capital of $100,000 in year 0. The newequipment can be sold in five years for $100,000 (salvage value). The variable costs per plate is expected to be $10 and the company will incur fixed costs of $200,000 per year. The marginal tax rate is 30% and thecompany uses a 16% cost of capital to evaluate bidding projects.What minimum bid price should they quote per plate? If your competitor quotes a price of $15 below your minimum bid price. What should be the new salvage value in order for you to match your competitor’s price?
