You Are Working on a Bid to Build Ten Cabins

question 77

Multiple Choice

You are working on a bid to build ten cabins a year for the next four years for a local campground. This project requires the purchase of $215,000 of equipment which will be depreciated using straight-line depreciation to a zero book value over four years. The equipment can be sold at the end of the project for $149,001. You will also need $28,000 in net working capital for the life of the project. Your fixed costs will be $22,000 a year and the variable costs will be $127,000 per cabin. Your required rate of return is 13% for this project and your tax rate is 35%. What is the minimum amount, rounded to the nearest $100, you should bid per cabin?

• A) $133,700
• B) $134,900
• C) $135,600
• D) $137,800
• E) $138,200

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