You Are Working on a Bid to Build fiVe Playgrounds

question 127

Multiple Choice

You are working on a bid to build five playgrounds a year for the next two years. This project requires the purchase of $62,000 of equipment which will be depreciated using straight-line
Depreciation to a zero book value over two years. The equipment can be sold at the end of the
Project for $39,001. You will also need $12,000 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 $49,000 per playground. Your
Required rate of return is 15% for this project and your tax rate is 34%. What is the minimum amount,
Rounded to the nearest $100, you should bid per playground?

• A) $57,600
• B) $57,900
• C) $58,200
• D) $58,500
• E) $58,800

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Definitions:

Cash Flow

The complete inflow and outflow of cash and equivalent financial assets within a business framework.

Future Value Formula

A mathematical equation used to calculate the future value of an investment based on its current value, the interest rate, and the time period of the investment.

Compounded Monthly

The process where interest earned on an investment is added to the principal each month, with future interest then earned on the new total.

Semi-Annually

Describes an event or action that occurs twice a year, typically every six months.