The Bits'n Bytes Computer Company has been requested by a large brokerage firm to submit a bid for a new computer system.The system would be installed in 20 branch offices per year for the next three years.Bits'n Bytes would need to purchase $250,000 worth of specialized equipment.The CCA rate would be 25 percent.Bits'n Bytes will be able to sell the equipment in three years for $125,000.Labour and material costs would be $35,000 per site.The company would need to invest $60,000 in net working capital.The relevant tax rate is 44 percent.Assume the asset class remains open after the asset is sold.If Bits'n Bytes requires a 16% return on investment,their minimum bid (price per system)should be:

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Quizplus · Accepted Answer

CF₀ = $250,000 + $60,000 = $310,000 PV(Labour costs)= $35,000*20*(1 - 44%)*PVAF(16%,3)= $880,388.70 11ea8229_3477_3915_bbd8_d15fdd157f00_TB1726_00 11ea8229_3477_3916_bbd8_dde5aab533ba_TB1726_00 PV(of minimum required revenues)= $310,000 + $880,388.70−$40,961.96 − $118,521.67 = $1,030,905.07 Annual Pre-tax Revenue = 11ea8229_3477_3917_bbd8_6fcbe1a4a5a6_TB1726_11 Minimum price per system = $819,676.07 / 20 = $40,983.80

The Bits'n Bytes Computer Company Has Been Requested by a Large