A young mechanical engineer is considering establishing his own small company. An investment of Php 100,000 will be required which will be recovered in 15 years. It is estimated that the sales will Php 150,000 per year and that operating expenses will be as follows: Materials Labor Overhead Selling expense Php 40,000 per year 70,000 per year 10,000 + 10% of sales per year 5,000 per year This man will give up his regular job paying Php 15,000 per year and devote full time to the operation of the business; this will result in decreasing labor cost by Php 10,000 per year, material cost Php 7,000 per year and overhead cost by 8,000 per year. If he expects to earn at least 20% of his capital, should you recommend him to invest? TER

A young mechanical engineer is considering establishing his own small company. An investment of Php 100,000 will be required which will be recovered in 15 years. It is estimated that the sales will Php 150,000 per year and that operating expenses will be as follows: Materials Labor Overhead Selling expense Php 40,000 per year 70,000 per year 10,000 + 10% of sales per year 5,000 per year This man will give up his regular job paying Php 15,000 per year and devote full time to the operation of the business; this will result in decreasing labor cost by Php 10,000 per year, material cost Php 7,000 per year and overhead cost by 8,000 per year. If he expects to earn at least 20% of his capital, should you recommend him to invest? TER

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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