You Are Working on a Bid to Build Four Small

question 102

Multiple Choice

You are working on a bid to build four small apartment buildings a year for the next three years for a local community. This project requires the purchase of $900,000 of equipment which will be depreciated using straight-line depreciation to a zero book value over the three years. The equipment can be sold at the end of the project for $400,000. You will also need $200,000 in net working capital over the life of the project. The fixed costs will be $475,000 a year and the variable costs will be $140,000 per building. Your required rate of return is 12% for this project and your tax rate is 34%. What is the minimal amount, rounded to the nearest $500 that you should bid per building?

• A) $292,500
• B) $316,500
• C) $330,500
• D) $341,500
• E) $365,000

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