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QUESTION
You will bid to supply 3 jets per year for each of the next three years to the Navy.
You will bid to supply 3 jets per year for each of the next three years to the Navy. To get set up, you will need $60 million in equipment, to be depreciated straight-line to zero over three years, with no salvage value. Total fixed costs per year are $10 million, and variable costs are $12 million per jet. Assuming a tax rate of 35% and a required return of 12%, what is the minimum price at which you should offer to supply the jets?
