The no-shoplift security company is interested in bidding on a contract to provi

Question

The no-shoplift security company is interested in bidding on a contract to provide a new security system for a large department chain store. The new security system would be phased into 10 stores per year for five years. No Shop lift can purchase the hardware for $50,000 per installation. The labor and material cost per install is $15,000. In addition, no lift will need to purchase $100,000 in new equip for the install, which will be depreciated to zero using the straight line method over five years. This equipment will be sold in five years for $25,000. finally and investment of $50,000 in net working capital will be needed. Assume that the relevant tax rate is 34 percent. If the no lift security company requires 10 % return on its investments what price would you bid?

Explanation / Answer

PV of Cash outflow (from investment) = 165000 + 50000 - (33000*0.34)PVIFA(10%,5) - (25000*0.66+50000)PVIF(10%,5)

= $131176.10

Price to Bid per annum = (131176.10/0.66)/PVIFA(10%,5) = 198751.67/3.7908 = $52430.19 ans

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