A utilisation of cash flow analysis is setting the bid price on a project.To calculate the bid price we set the project NPV equal zero and find the required price.Thus the bid price represents a finan

The bid price that should be submitted is $14.96 per carton. To calculate the bid price, we need to first calculate the annual cash flows for the project. Year 0: Initial investment in net working capital: -$130000 Equipment installation cost: -$1800000 Consulting cost: -$100000 Total: -$2030000 Years 1-5: Revenue from sales of machine screws: $1,190,000 (140,000 cartons x $8.50 per carton) Variable costs: $1,190,000 x $8.50 = -$1,011,500 Fixed costs: -$265000 Depreciation: -$360000 ($1800000 / 5) Total cash flows: $1,190,000 - $1,011,500 - $265,000 - $360,000 = $-446,500 (Note: the depreciation expense is a non-cash expense and is added back to get the cash flows.) Year 5 Salvage Value: Equipment can be salvaged for $150000 Thus, the total cash flow for the project is: -$2030000, -$446500, -$446500, -$446500, -$446500, $203500 (includes salvage value) Using the cash flows, we can calculate the NPV of the project: NPV = -2030000 + [(1-0.35) x -446500 / (1+0.14)^1] + [(1-0.35) x -446500 / (1+0.14)^2] + [(1-0.35) x -446500 / (1+0.14)^3] + [(1-0.35) x -446500 / (1+0.14)^4] + [(1-0.35) x 203500 / (1+0.14)^5] NPV = -$713,298.49 To find the bid price that sets the NPV equal to zero, we need to find the price that will give us a total income of $713,298.49 over the 5 years. This can be calculated using the annuity formula: $713,298.49 = (PMT) x [(1-1/(1+0.14)^5) / 0.14] Solving for PMT (price per carton), we get: PMT = $14.96 Therefore, the bid price that should be submitted for the contract is $14.96 per carton.