2. A young engineer is considering establishing his own small company. An investment ofP400,000.00 will be required which will be recovered in 10 years. It is estimated that saleswill be P1,000,000.00 per year and that operating expenses will be as follows.P160,000 per yearP280,000 per yearP40,000 +10% of sales per yearMaterialsLaborOverheadSelling expenseP60,000The engineer will give up his regular job paying P300,000 per year and devote fulltime to the operation of the business; this will result in decreasing labor cost by P40,000 peryear, material cost by P28,000 per year and overhead cost by P32,000 per year. If the manexpects to earn at least 20% of his capital, should he invest? Analyze using the ROR, PresentWorth Method, and Annual Worth method.

The ROR refers to the rate at which the cost of borrowing amounts to the cost of capital.

Answered: The engineer will give up his regular…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter7: Nonlinear Optimization Models

Section: Chapter Questions

Problem 59P

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