The managers of PonchoParts, Inc. plan to manufacture engine blocks for classic cars from the 1960s era. They expect to sell 250 blocks annually for the next ﬁve years. The necessary foundry
And machining equipment will cost a total of $800,000 and belongs in a 30% CCA class for tax
Purposes. The ﬁrm expects to be able to dispose of the manufacturing equipment for $150,000 at
The end of the project. Labour and materials costs total $500 per engine block, ﬁxed costs are
$125,000 per year. Assume a 35% tax rate and a 12% discount rate.
What is the minimum bid price the ﬁrm should set as a sale price for the blocks if the ﬁrm were in a
Bidding situation?

Question

Quizplus · Accepted Answer

The minimum bid price is calculated by considering the total costs, including fixed and variable costs, tax implications, and the required return on investment. After accounting for these factors, the minimum bid price that covers all costs and provides the required return is $1,934.

The Managers of PonchoParts, Inc