Idle parcel of land


Consider a project to supply 100 million postage stamps per year to canada post for the next 5 years. You have an idle parcel of land available that cost $1,000,000 five years ago; if you sold the land today, it would net you $1,500,000 after tax. If you sold the land five years from now, the land can be sold again for $1,500,000 after tax. You will need to install $3,800,000 in new manufacturing plant and equip to actually produce stamps; this plant and equipment will be depreciated straight-line to zero over the project's five year life. The equipment can be sold for $680,000 at the end of the project. You will need $500,000 in initial net working capital for the project and an additional $50,000 every year thereafter. Your production costs are $0.5 cents per stamp, and you have fixed costs of $900,00 per year. If he tax rate is 34 percent and your required return on the project is 12 percent, what bid price should you submit on the contract?

Request for Solution File

Ask an Expert for Answer!!
Accounting Basics: Idle parcel of land
Reference No:- TGS0517765

Expected delivery within 24 Hours