Ms. Jampal is planning to open a laboratory for Covid-19 test in Chiang Mai on 1st October 2022 with her own money 1 million $ plus another 1 million$ that she will borrow from her friend for 10 years with 6.25% interest rate. But if she decides not to do this business and put her 1 million$ in a stock fund instead, she expects to get 9% return. So, she decides to use 9% as her company's cost of equity. She will use 1.8 millions of the company's money to build laboratory and buy equipment. The laboratory and equipment are expected to be used for 10 years. The remaining 0.2 million $ will be used as working capital during year 1-10. The first year's revenue is expected to be 1 million $ and grow 2% every year (from previous year). Estimated COGS is 50% of Sales/Service, and S, G & A expense is 15% of Sales/Service. The company pay tax at 20%. Should she run that business? Why or why not?
Ms. Jampal is planning to open a laboratory for Covid-19 test in Chiang Mai on 1st October 2022 with her own money 1 million $ plus another 1 million$ that she will borrow from her friend for 10 years with 6.25% interest rate. But if she decides not to do this business and put her 1 million$ in a stock fund instead, she expects to get 9% return. So, she decides to use 9% as her company's cost of equity. She will use 1.8 millions of the company's money to build laboratory and buy equipment. The laboratory and equipment are expected to be used for 10 years. The remaining 0.2 million $ will be used as working capital during year 1-10. The first year's revenue is expected to be 1 million $ and grow 2% every year (from previous year). Estimated COGS is 50% of Sales/Service, and S, G & A expense is 15% of Sales/Service. The company pay tax at 20%. Should she run that business? Why or why not?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Ms. Jampal is planning to open a laboratory for Covid-19 test in Chiang Mai on 1st October 2022
with her own money 1 million $ plus another 1 million $ that she will borrow from her friend for
10 years with 6.25% interest rate. But if she decides not to do this business and put her 1
million$ in a stock fund instead, she expects to get 9% return. So, she decides to use 9% as her
company's cost of equity. She will use 1.8 million$ of the company's money to build laboratory
and buy equipment. The laboratory and equipment are expected to be used for 10 years. The
remaining 0.2 million $ will be used as working capital during year 1-10. The first year's revenue is
expected to be 1 million $ and grow 2% every year (from previous year). Estimated COGS is 50%
of Sales/Service, and S, G & A expense is 15% of Sales/Service. The company pay tax at 20%.
Should she run that business? Why or why not?
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