Consider a Project to Supply 60,800,000 Postage Stamps to the U.S.Postal

Multiple Choice

Consider a project to supply 60,800,000 postage stamps to the U.S.Postal Service for the next 5 years.You have an idle parcel of land available that cost $760,000 five years ago; if the land were sold today,it would net you $912,000,aftertax.The land can be sold for $1,500,000 after taxes in 5 years.You will need to install $2,356,000 in new manufacturing plant and equipment to actually produce the stamps; this plant and equipment will be depreciated straight-line to zero over the project's 5-year life.The equipment can be sold for $456,000 at the end of the project.You will also need $469,000 in initial net working capital for the project,and an additional investment of $38,000 in every year thereafter.All net working capital will be recovered when the project ends.Your production costs are 0.38 cents per stamp,and you have fixed costs of $608,000 per year.Your tax rate is 31 percent and your required return on this project is 11 percent.What bid price per stamp should you submit?

A) $0.018
B) $0.020
C) $0.023
D) $0.026
E) $0.029