Problem
WSB Inc. is going to submit a bid to FEMA to produce 23 mobile water purifying trailers per year for each of the next 3 years. If it wins the bid, WSB will invest $2 million in Capex and another $46 thousand in net working capital. WSB will straight-line the long-term assets to a book value of zero over the life of the project, at the end of which the equipment will be worthless. WSB expects production costs of $186 thousand per trailer and anticipates annual SGA of $44 thousand.
• What is the minimum price per trailer WSB should bid if it must earn 14% for investments of this risk and faces a tax rate of 34%?