You Will Bid to Supply Three Jets Per Year for Each

question 217

Multiple Choice

You will bid to supply three jets per year for each of the next three years to the Canadian Armed Forces. To get set up, you will need $10 million in equipment, which belongs in a 30% CCA class
And will have no salvage value. Total fixed costs per year are $5 million, and variable costs are $7
Million per jet. Assuming a tax rate of 30% and a required return of 10%, what is the minimum price
At which you should offer to supply the jets?

• A) $5 million each
• B) $6 million each
• C) $9 million each
• D) $11 million each
• E) $32 million each

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Definitions:

Dairy Queen

A chain of soft serve ice cream and fast-food restaurants.

Incentive

A thing that motivates or encourages someone to do something, often seen in psychology as a way to influence behavior.

Homeostasis

The process by which biological systems maintain stability and equilibrium while adjusting to changes necessary for survival.

Drive-Reduction Theory

A theory that postulates that the motivation for behavior arises from biological needs that drive an organism to seek homeostasis or a state of balance.