Heer Enterprises Needs Someone to Supply It with 225,000 Cartons

question 3

Multiple Choice

Heer Enterprises needs someone to supply it with 225,000 cartons of machine screws per year to support its manufacturing needs over the next 7 years, and you've decided to bid on the contract. It will cost you $1,170,000 to install the equipment necessary to start production; you'll depreciate this cost straight-line to zero over the project's life. You estimate that in 7 years, this equipment can be salvaged for $75,000. Your fixed production costs will be $360,000 per year, and your variable production costs should be $12.75 per carton. You also need an initial investment in net working capital of $112,500, all of which will be recovered when the project ends. Your tax rate is 32 percent and you require a 13 percent return on your investment. What bid price per carton should you submit?

• A)$17.04
• B)$16.56
• C)$15.79
• D)$15.03
• E)$14.81

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Definitions:

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price over a specified period of time.

Rising Incomes

An economic condition where individuals or populations experience an increase in their disposable income, often leading to changes in spending habits and economic growth.

Cost of Lumber

The expense associated with purchasing wood used for construction and manufacturing, which can vary based on supply and demand.

Demand

The quantity of a good or service that consumers are willing and able to purchase at various price levels at a given point in time.