What are the expected annual net economic profits (losses) to the owner if the new business is started?
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A proprietor who just inherited a building is considering using it in a new business venture.
Projections for the business are: revenue of $100,000, fixed cost of $30,000, and variable cost
of $50,000. If the business is not started, the owner will work for a company for a wage of
$23,000. Also, there have been two offers to rent the building, one for $1,000 per month and
one for $1,200 per month. What are the expected annual net economic
owner if the new business is started?
A. $20,000 B. $(3,000) C. $(15,000) D. $(17,400)
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- A proprietor (CHRISTIA) who just inherited a building is considering using it in a new business venture. Projections for the business are: revenue of $100,000, fixed cost of $30,000, and variable cost of $50,000. If the business is not started, the owner will work for a company for a wage of $23,000. Also, there have been two offers to rent the building, one for $1,000 per month and one for $1,200 per month. What is the relevant cost of the building (per annum) to be consider in determining whether to start the business?The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low. Are there options other than the purchase of additional equipment that should be considered in making the decision to expand the business? If the owner is optimistic about the company's future sales, should the company expand by purchasing the equipment? Is the owner's optimism or pessimism about sales the only factor that may impact the company's profits? The equipment to be purchased is known in the industry to have a useful life of five years. How might this impact the printing company?The Capitalpoor Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and service. If the machine is purchased, a comparable repair and service contract can be obtained for $1,000 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value, but the company is not sure how long themachine will actually be needed. If the machine is rented, the company can cancel the lease at the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of $20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.
- Bill Braddock is considering opening a Fast 'n Clean Car Service Center. He estimates that the following costs will be incurred during his first year of operations: Rent $8,800, Depreciation on equipment $7,000, Wages $16,400, Motor oil $12.00 per oil change. Oil filters will cost $5.00 per oil change. He must also pay The Fast 'n Clean Corporation a franchise fee of $1.20 per oil change, since he will operate the business as a franchise. In addition, utility costs are expected to behave in relation to the number of oil changes as follows: Number of Oil Changes Instructions 4,000 6,000 9,000 12,000 14,000 Format answers with $ signs, commas, or % when appropriate. (a) Using the high-low method, determine variable costs per unit $15,000 Bill Braddock anticipates that he can provide the oil change service with a filter at $25 each. for the utility costs. Utility Costs lyr $7,000 $ 8,300 $ 10,600 $13,000 and fixed costsBaghibenA land surveyor just starting in private practice needs a van to carry crew and equipment. He can lease a used van for $8000 per year, paid at the beginning of each year, in which case maintenance is provided. Alternatively, he can buy a used van for $16,000 and pay for maintenance himself. He expects to keep the van for 3 years, at which time he would sell it for an anticipated $3500. Given a MARR of 6%, what is the most the surveyor should pay for uniform annual maintenance to make it worthwhile to buy the van instead of leasing it?
- Alissa Stack has identified an industrial building to purchase to be leased to Jesse's Shoes for light manufacturing. She has located a property that Jesse's shoes will leased (triple-net) for $2,000,000 per year. She believe she can purchase property for a 6.25% cap rate. What is the price of the of the industrial building?The X Company is considering purchasing a business machine for $100,000. An alternative is to rent it for $35,000 at the beginning of each year. The rental would include all repairs and services. If the machine is purchased, a comparable repair and service contract can be obtainedfor $1,000 per year. The salesperson of the business machine firm has indicated that the expected useful service life of this machine is five years, with zero market value, but the company is not sure how long the machine will be needed. If the machine is rented, the company can cancel the lease at the end of any year. Assuming an income tax rate of 25%, a straight-line depreciation charge of $20,000 for each year the machine is kept, and an after-tax MARR of 10%, prepare an appropriate analysis to help the firm decide whether it is more desirable to purchase or rent.A company is currently paying a sales representative $0.50 per mile to drive her car for company business. The company is considering supplying the representative with a car, which would involve the following:Option l: Continue to pay at the rate of 50 cents per mile.Option 2: Provide a company vehicle to the sales representative. A car costs$24,000 and has a service life of five years and a market value of $7,000 atthe end of that time. The cost of keeping the car in the garage during the off-hours amounts to $2,500 a year, and the cost of fuel, tires, and maintenance is 30 cents per mile. The car will be depreciated by MACRS using a recovery period of five years (20%, 32%, 19.20%, 11.52%, 11.52%).The firm's marginal tax rate is 40%. What annual mileage must the sales representative travel by car for the cost of the two options of providing transportation to be equal if the interest rate is 15%?(a) 36,345 miles (b) 41,235 miles (c) 45,233 miles (d) 47,518 miles
- You are considering buying an old warehouse that you will convert into anoffice building for rental. Assuming that you will own the property for 10 years, how much would you be willing to pay for the old house now given the following financial data?(i) Remodeling cost at period 0 = $550,000;(ii) Annual rental income = $800,000;(iii)Annual upkeep costs (including taxes)= $80,000;(iiii) Estimated net property value (after taxes) at the end of 10 years =$2,225,000;(iiiii)The time value of your money (interest rate)= 8% per year.(a) $4,445,770(b) $5,033,400(c) $5,311,865(d) $5,812,665The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low. Consider Decision Tree Analysis If the owner is optimistic about the company's future sales, should the company expand by purchasing the equipment? Is the owner's optimism or pessimism about sales the only factor that may impact the company's profits?Agata Bertina wants to open a new factory in New Jersey. The company can either purchase or lease the factory. There are three options available for Agata Bertina : 1. Purchase a factory with a useful life of 10 years today for $700,000 in cash. This factory has no additional space for rent. 2. Lease a factory with annual lease payments of $45,000 for 10 years. Payments are made at the beginning of each year. 3. Purchase a factory with a useful life of 10 years today for $745,000. In addition, the company can rent some additional space for annual rent of $4,000. Assume Agata Bertina would receive the rental payments at the end of each year. Requirement: Interest is compounded annually. Which option should Agata Bertina choose given a 3% interest rate? First, calculate the present value of each option. (Ignore any depreciation expense for purposes of this problem. Use the present value and future value tables, the formula method, a financial calculator,…