If there are FIVE ads for a keyword...

Make sure there is enough total demand for a keyword. This will vary according to the nature of your site. If you are making a few cents per visitor an average, you need more traffic than sites that average a dollar per visitor. I won't optimize for a keyword that is searched less than a few hundred times per month.

No, you cannot assume that. You cannot even assume there are only five ads for the given keyword.

One thing you have to understand is that this is a dynamic environment. There may be more advertisers (or less) for a keyword later. Some advertisers may show their ads only in certain countries, or even states or cities. Some may do so only during certain times of the day or the week.

Even if there was only five advertisers, bidding the lowest would not necessarily put your ad in the 6th spot, if at all. You still have to have a good quality score and bid the going rate for that keyword and score. Plus, what you eventually pay is dependent on the other advertisers' QS and what they are willing to pay. You don't know either of those values. The *current* last spot advertiser may be bidding the lowest, say ten cents, but you don't know. Maybe they are paying ten cents, maybe less, you don't know.

You come in with the same ten cent bid. What are you going to pay? Maybe ten cents, maybe less, depending on your ad's quality (assuming Google says your quality is good enough). As a new advertiser, you are affecting the advertisers around you and they are being affected by you. That last advertiser may have a great ad, bid 10 cents pay but pay 8 cents, putting you in 5th spot and paying 10 cents.