Screwy Corp needs someone to supply it with
Screwy Corp needs someone to supply it with 143,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and youâve decided to bid on the contract. It will cost you $ 1,830,000 to install the equipment necessary to start production; youâll depreciate this cost straight-line to zero over the projectâs life. You estimate that in five years this equipment can be salvaged for $153,000. Your fixed production costs will be $268,000 per year, and your variable production costs should be $8.80 per carton. You also need an initial investment in net working capital of $133,000 which will be recovered in the last year of the project. If your tax rate is 38 percent and you require a 14 percent return on your investment, what is the lowest price per carton you should charge in order to make this a positive NPV project?
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