Question

PLEASE ANSWER USING EXCEL and put in cells viewing mode

Bid Problem: Your firm has been asked to submit a bid for a new computerized cash register system. The system would be installed in 50 stores per year for the next 4 years. Your firm would need to purchase $800,000 worth of specialized equipment. The CCA rate would be 30%. Your firm will be able to sell the machine for $150,000 in 4 years time. Your firm has estimated that it will have to incur labour costs of $40,000 per store to successfully install the system. The project will also require an initial investment in NWC of $120,000. NWC will remain at this level over the life of the project. The tax rate is 40% and the required rate of return is 15%. What is the minimum bid price that your firm should submit?

Answer 1

Particulars	$
Computer Cost
Cost of Computers	8,00,000
Salvage value after 4 year	1,50,000
Depreciable value	6,50,000
Labour Cost
Cost per Stall	40,000
Cost for 50 Stall	20,00,000
Capital Cost
Cost of Computer	8,00,000
Labour Cost	20,00,000
Net Working Capital	1,20,000
Total Capital Required	29,20,000
CCA at 30%	8,76,000
Estimate of Total COST
Depreciation	6,50,000
Labour cost for Installation	20,00,000
Cost of Capital	8,76,000
Total Cost	35,26,000
If we require 15% return after tax we should bid at following amount
	For example
Net revenue before tax	100	Assume
tax at 40%	40
Net amount after tax	60
Therefore to get the 15% return on investment
Total expenses	400	(60/115%)
So total Revenue is	500	(Total Expenses 400 + Net profit of 100)
So if	Assume	Actual
Expenses	400	35,26,000
Revenue	500	44,07,500
Answer: Our minimum Bid amount should be $44,07,500