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Bid Price to supply 100 million stamps per year

Please calculate the bid price that should be submitted from the following information:

If a project is to supply 100 million postage stamps per year to the USPS for the next five years. You have land available that cost $2,400,000 5 years ago. If it were sold today, it would net $2,700,000 after tax. The land could be sold for 3,200,000 after taxes in 5 years. You will need to install $4.1 million in new manufacturing plant and equipment to produce stamps. Plus they will be depreciated straight line to zero over the five years. The equipment can be sold for $540,000 at the end of the project. You will also need $600,000 in initial net working capital for the project and additional investing of $50,000 every year.

Your production costs are .5 cents per stamp and you have fixed costs of $950,000 per year. If your tax rate is 34% and your required return in 12% what bid price should be submitted.

Please show all calculations.

Solution Summary

The solution explains how to calculate the bid price to supply 100 million stamps per year