A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will be required, which will be recovered in 15 years. It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows: Materials $1,600,000 per year Labor $2,800,000 per year Overhead $400,000 + 10% of the yearly revenue Other expenses $600,000 per year The engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to the operation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by $280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% of his capital, should he invest? NOTE: Use Annual Worth Method.
A Civil Engineer is considering establishing his own company. An investment of $4,000,000 will be
required, which will be recovered in 15 years.
It is estimated that revenue will be $8,000,000 per year and that operating expenses will be as follows:
Materials $1,600,000 per year
Labor $2,800,000 per year
Overhead $400,000 + 10% of the yearly revenue
Other expenses $600,000 per year
The engineer will give up his regular job paying $2,160,000 per year and devote his time fulltime to the
operation of the business; this will result in decreasing labor costs by $400,000 per year, material costs by
$280,000 per year and overhead cost by $320,000 per year. If the man expects to earn at least 20% of
his capital, should he invest? NOTE: Use Annual Worth Method.
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