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?
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…
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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
Seth Fitch owns a small retail ice cream parlor. He is considering expanding the business and has identified two attractive alternatives. One involves purchasing a machine that would enable Mr. Fitch to offer frozen yogurt to customers. The machine would cost $7,530 and has an expected useful life of three years with no salvage value. Additional annual cash revenues and cash operating expenses associated with selling yogurt are expected to be $6,070 and $850, respectively.Alternatively, Mr. Fitch could purchase for $9,960 the equipment necessary to serve cappuccino. That equipment has an expected useful life of four years and no salvage value. Additional annual cash revenues and cash operating expenses associated with selling cappuccino are expected to be $8,440 and $2,350, respectively.Income before taxes earned by the ice cream parlor is taxed at an effective rate of 20 percent.Required Determine the payback period and unadjusted rate of return (use average investment) for each…
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Marcus is considering a purchase of a new Toyota that costs $20,000 at a local dealership. Marcus estimates the annual cost of maintenance, registration, insurance, and gas to be about $1,500. After extensive internet research, Marcus estimates that he can sell his Toyota in three years for $10,000. What is Marcus's estimated cost of owning and driving the car for three years? $20,000 3 x $1,500+$20,000-$24,500 3x $1,500+$20,000 $10,000 $14,500 $20,000 $10,000 = $10,000

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