quiz_solve07

# quiz_solve07 - FNCE 3010(Durham Fall 2007 Quiz 7 1 Davis...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FNCE 3010 (Durham). Fall 2007. Quiz 7. 1. Davis Office Products (DOP) is considering making a bid to supply staplers to the University of Colorado. The contract is for 5000 staplers per year over the next five years. It will cost \$45,000 to install the equipment neeeded to start production. The salvage value for this equipment is expected to be \$8,000. The equipment will be depreciated using the straight-line approach over 7 years. Production costs will be \$39,500 per year. Also, an initial investment of \$11,000 in net working capital will be needed (which will be recovered at the end of the project). The tax rate is 34% and DOP’s cost of capital for this project is 14%. (a) If DOP receives \$55,000 per year for delivering the staplers, what is the project’s NPV? What is its IRR? Should they undertake this project? (b) What is the minimum bid price (per year) they should submit? Solution: (a) DEPR = 45000/7 = 6429 OCF = (Sales - Costs)*(1-T) + Depr*T = (55000 - 39500)*.66 + 6429*.34= (55000 - 39500)*....
View Full Document

{[ snackBarMessage ]}

### Page1 / 2

quiz_solve07 - FNCE 3010(Durham Fall 2007 Quiz 7 1 Davis...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online