You Are Working on a Bid to Build Four Cabins

question 72

Multiple Choice

You are working on a bid to build four cabins a year for the next three years for a local campground. This project requires the purchase of $66,000 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 $40,001. You will also need $16,000 in net working capital over the life of the project. The fixed costs will be $18,000 a year and the variable costs will be $88,000 per cabin. Your required rate of return is 14% for this project and your tax rate is 34%. What is the minimal amount (rounded to the nearest $500) that you should bid per cabin?

• A) $95,000
• B) $95,500
• C) $97,000
• D) $98,500
• E) $115,000

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Definitions:

Wage

The fixed regular payment, typically calculated on an hourly, daily, or piecework basis, made by an employer to an employee.

Marginal Product

The additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.

Profit Maximize

The process by which a company determines the price and output level that returns the greatest profit, taking into account costs and demand.

Wage Rate

Wage Rate represents the standard amount of compensation a worker receives for performing a specific task or job, typically expressed per hour or per unit of work completed.