Alexander Driverman, Director of ticket sales for Buslink, recently put out an RFQ for the supply of new ticketing machines for Skybus. Buslink needs to purchase 110 new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $860,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, computed using the Accelerated Investment Incentive Method. You believe that you will be able to sell the new equipment for $230,000 at the end of the project. It will cost you $2,800 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $115,000 per year. Net working capital will rise by $60,000 initially but this will all be recovered at the end of the project. Your firm’s tax rate is 25% and the firm’s cost of capital is 20%. Accelerated investment incentive applies. How much should we bid to produce each new ticketing machine?
Alexander Driverman, Director of ticket sales for Buslink, recently put out an RFQ for the supply of new ticketing machines for Skybus. Buslink needs to purchase 110 new ticketing machines each year for the next five years. In order to bid on the project, you will need to acquire $860,000 of new, specialized metal forming equipment. This equipment is a class 8 asset with a 20% CCA rate, computed using the Accelerated Investment Incentive Method. You believe that you will be able to sell the new equipment for $230,000 at the end of the project. It will cost you $2,800 in labour and supplies to produce each ticketing machine and your fixed overhead will cost $115,000 per year. Net working capital will rise by $60,000 initially but this will all be recovered at the end of the project. Your firm’s tax rate is 25% and the firm’s cost of capital is 20%. Accelerated investment incentive applies. How much should we bid to produce each new ticketing machine? Answer format: Cash inflows are positive (no + sign). Cash outflows are negative (use - sign). e.g. Positive
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