You Are Working on a Bid to Build Two Apartment

question 21

Multiple Choice

You are working on a bid to build two apartment buildings a year for the next three years. This project requires the purchase of $847,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the project's life. Ignore bonus depreciation. The equipment can be sold at the end of the project for $415,000. You will also need $165,000 in net working capital over the life of the project. The fixed costs will be $528,000 a year and the variable costs will be $1,640,000 per building. Your required rate of return is 16 percent for this project and your tax rate is 24 percent. What is the minimal amount, rounded to the nearest $100, you should bid per building?

• A) $4,158,400
• B) $4,489,500
• C) $2,065,700
• D) $2,780,600
• E) $2,244,800

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Definitions:

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