Desmond currently is a brewmaster for Copper Creek Brewery. He enjoys his job, but is Intrigued by the prospect of quitting and starting his own brewery. He currently makes $70,000 at Copper Creek. Desmond anticipates that his new brewery will have annual revenues of $250,000, and total annual expenses for operating the brewery, outside of any payments to Desmond, will be $190,000. Desmond comes to you with his idea. He believes that he would be equally happy with either option, but that starting his own brewery is the right decision in light of its profitability. Ignoring what might happen beyond the first year, determine the Incremental profit or loss from his newly started brewery? Is it better for Desmond to continue with the current job or to start his own brewery? Incremental profit (loss) Better option for Desmond

Desmond currently is a brewmaster for Copper Creek Brewery. He enjoys his job, but is Intrigued by the prospect of quitting and starting his own brewery. He currently makes $70,000 at Copper Creek. Desmond anticipates that his new brewery will have annual revenues of $250,000, and total annual expenses for operating the brewery, outside of any payments to Desmond, will be $190,000. Desmond comes to you with his idea. He believes that he would be equally happy with either option, but that starting his own brewery is the right decision in light of its profitability. Ignoring what might happen beyond the first year, determine the Incremental profit or loss from his newly started brewery? Is it better for Desmond to continue with the current job or to start his own brewery? Incremental profit (loss) Better option for Desmond

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Celia, age 30 is leaving a major systems development company to establish her own firm. She will design computer-based systems for small- and medium-sized businesses. Celia will invest $100,000 in the business. She hopes to operate near her breakeven point during her first year, although a small loss is possible. Profits will build up slowly over the next four years until she is earning $150,000 a year in her fifth year. Celia has heard about S Corporations and asks you whether the S Corporation form would be advisable for her new business. How would you respond to Celia's inquiry?
Kath is considering investing 500,000.00 to open a Milk Tea Station near a mall. Based on her feasibility study, she can sell 12 large size of milk tea per hour at a price of 25.00 per bottle. She is planning to hire 2 crews, with an hourly rate of 25.00, to manage the store which will operate 8hours per day, 6 days per week, and 50 weeks per year. However, additional out-of-pocket miscellaneous cost is 8,500.00 per month. More so, she wanted to have her crews a 2-week vacation every year with pay. If the capital now is earning 15% annually and she must write off her investment within 5 years with desire rate of return of at least 20% on his investment, would you recommend the investment? Use the rate of return method and annual worth method in making your decision.
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $200 per day plus $1.00 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Spike, will be ready to retire. Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Calculate the NPV of the investment.
Jim just got a coding job so he will need a new laptop. He finds a good one, which costs $20,000 and can be used for 6 years. After that, the computer will be useless with zero salvage value due to a massive coding work. Jim has insufficient money to buy it, but he can borrow funds at an annual interest rate of 2.5%. The tax rate is 28%. The store said if Jim chooses to lease the laptop, Jim will pay for $3,500 per year (pre-tax). What is the amount of the after- tax lease payment? a) $1,067.5 b) $2,520 c) $980 d) $87.5 e) $14,400
Which of the following sets of Excel entries will correctly solve this problem: Jim paid $138,000 for an old house to renovate. He spent an average of $3,216 per quarter over the next two years as he readied the renovated house for sale. He wants to set the price of the house high enough so that he will earn an annual rate of return of 12% for his investment. Given that information, what price should Jim set on the house?
Assume that you just graduated from Mason and are employed at an investment bank making $120,000 (after-tax) per year, and you expect to make the same amount for each of the next 5 years. A classmate from MBA643, who knows what a hard party person you were, gives you a call and tries to convince you to join forces with him on a project. The project is to produce a new type of vodka, “Hangover’s over”, that won’t make one feel hangover the next morning no matter how many bottles one drinks. If you decide to join, you will have to quit your current job, and work full-time on the project. The project requires an initial investment of $400,000 in production equipment, which can be depreciated straight-line over 5 years to a salvage value of $80,000. You own a house that you are currently renting out for $24,000 a year and planning to use the house as your office if you join the project. You expect to sell 20,000 bottles of the “Hangover’s over” at $40 per unit each year for the next 5…
You are the CFO of Carla Vista, Inc., a retailer of the exercise machine Slimbody6 and related accessories. Your firm is considering opening up a new store in Los Angeles. The store will have a life of 20 years. It will generate annual sales of 4,000exercise machines, and the price of each machine is $2,500. The annual sales of accessories will be $600,000, and the operating expenses of running the store, including labor and rent, will amount to 50percent of the revenues from the exercise machines. The initial investment in the store will equal $26,800,000 and will be fully depreciated on a straight-line basis over the 20-year life of the store. Your firm will need to invest $3,000,000 in additional working capital immediately, and recover it at the end of the investment. Your firm’s marginal tax rate is 30 percent. The opportunity cost of opening up the store is 13.70 percent. What are the incremental free cash flows from this project at the beginning of the project as well as in…
On Oct 1, 2020, Ned started a new business customizing TV sets. He visited customers’ homes and installed colourful lighting that enhanced TV viewing. Soon, his friend Robert had the idea of prebuilding TV sets which customers could pick up. Since he was busy with installations, Ned decided he would pay Robert to build the TVs and sell them out of his garage. Robert earned $100 per TV he customized and sold. He earned $75 for each prebuilt TV which Ned delivered and installed in a customer’s home. Ned buys TVs in bulk at an average price of $300 per unit. He pays $250 for a big box of LED lights, which are enough to complete 10 TVs. Ned estimates that his work vehicle costs total $300 a month. In 2020, Ned completed 32 in-home installations, for which he charged $250 each. He also installed 11 prebuilt TVs, which he charged $700 each for. Robert sold 29 prebuilt TVs for $500 apiece. Ned is thinking of making a couple of changes for 2021, when he is expecting the sales numbers from 2020…
Ernie Bilko has a business idea. He wants to rent an abandoned gas station for just the months of November and December. He will convert the gas station into a drive-through Christmas wrapping station. Customers will drive in, drop off their gifts, return the next day, and pick up their wrapped gifts. He needs $338,500 to rent the gas station, purchase wrapping paper, hire workers, and advertise. If he borrows this amount at 6 and 1/2% interest for those two months, what size lump sum payment will he have to make to pay off the loan? (Round your answer to the nearest cent.)
Ayman want to start a new project - a sport center project. Aymen appreciate that he needs to sborrow $50000 to buy fitness machines at 10%. The machine would depreciate over 10 years. Aymen think that he can sell these machine for $10000. Rent is $6000 yearly . The clup needs a supervisor, monthly salary $1000- ($12000 yearly). Aymen thinks that this club can attract at least 50 young man, each would pay $1200 yearly. Ayman pay 30% Tax.
Three friends are starting a home painting business while they are in college. One of the friends is from a wealthy family and will finance the startup costs – website development, advertising and purchasing the paint, in return for a 50% share of the business. The other two friends will each own 25% of the business. They may have two or three employees who will be paid by the job and will not own any of the business. They expect to distribute to themselves all the earnings of the business every month. Once they graduate from college, they expect to leave the business and have their brothers and sisters take over. They have no plans to grow the business beyond one or two projects at a time. Which form of ownership should they use as they start up this business?
Following the last question - John is evaluating the idea to open an ice cream shop on a piece of land. The followings are what he might include in the cash flows: Instead, John can earn $120,000 if he decides to sell the land today. He bought this land for $350,000 two years ago. • Outfitting the space for an ice cream shop would require a capital expenditure of $150,000 today. It'll require an investment of $30,000 in inventories for making the ice creams today. What are the opportunity costs of opening the ice cream shop? 1 · . -$120,000 O-$180,000 O-$350,000 O-$270,000 4

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