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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- Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1.200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows: A. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer? B. What will be the impact on net operating income if Shonda & Shonda purchases the new computer? C. What would be your recommendation to Shonda & Shonda regarding this purchase?Talbot Industries is considering launching a new product. The new manufacturing equipment will cost 17 million, and production and sales will require an initial 5 million investment in net operating working capital. The companys tax rate is 40%. a. What is the initial investment outlay? b. The company spent and expensed 150,000 on research related to the new product last year. Would this change your answer? Explain. c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for 1.5 million after taxes and real estate commissions. How would this affect your answer?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 firm paid $2,200,000 for the warehouse at that time. The owner, " Jack," (as the locals call him), decides if he wants to expand, he will need more space. He decides to expand the size of the current warehouse. This expansion will cost him about $300,000 to construct a new side to the building. Using the additional space wisely, Jack estimates that he will be able to generate about $70,000 more in sales per year, while incurring $41,500 in labor and variable costs of good What is the amount of the Net Capital Expenditure (NCS) on the projectSarah earns an annual salary of £76,000, working for an investment bank. She is considering resigning and setting up her own business. Sarah estimates that the new business requires an initial investment of £96,000 for fixed assets with an expected useful life of five years. Forecast revenues and expenses for the first year of operations are. Sales Operating Expenses Rent Lease of equipment Staff salaries Supplies Utility bills Insurance Business rates Advertising Legal, audit and banking fees £320,000 £52,000 £13,250 £126,500 £22,000 £8,500 £2,500 £4,200 £7,000 £2,500 Sarah has personal savings sufficient to finance 70% of the initial investment. She is currently earning an annual interest rate of 1.2% on the savings. The rest of the investment finance would be provided by a five-year bank loan at a fixed annual rate of 5.9%. Required: a) Calculate the accounting profit for the first year of operations. Assume that the fixed assets are fully depreciated on a…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.
- You are an employee of University Consultants, Ltd., and have been given the following assignment. You are to present an investment analysis of a new small residential income-producing property for sale to a potential investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A 70 percent loan can be obtained at 11 percent interest for 30 years. The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold. a. What is the investor’s expected before-tax internal rate of return on equity invested (BTIRR)?b. What is the first-year debt coverage ratio?c. What is the terminal capitalization rate?d. What is the NPV using a 14 percent discount rate? What does this mean?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?A businessman bought a building, but the thermal insulation of the roof is not adequate. It was determined that with 6 '' of insulating foam it is possible to reduce the cost of heating by $ 1,500 and air conditioning by $ 2,000 per month. Assuming that the first six months of the year is winter and the next six months are summer, calculate the maximum price of the repair if the building is expected to be maintained for 2 years. The interest rate is 1.5% per month. please put the digram
- Lou Lewis, the president of Lewisville Company has asked you to give him an analysis of the best use of a warehouse the company owns. The company has a 40% effective tax rate. a. Lewisville Company is currently leasing the warehouse to another company for $5,000 per month on a year-to-year basis. b. The warehouse's estimated sales value is $200,000. A commercial realtor believes that the price is likely to remain unchanged in the near future. The building originally cost $60,000 and is being depreciated at $1,500 annually. Its current net book value (NBV) is $7,500. 1. Show how you would handle the individual items in determining whether the company should continue to lease the space or convert it to a factory outlet. Use PV function in Excel, VDB function in Excel to calculate annual depreciation charges. Use NPV function to calculate depreciation tax savings. (complete questions is attached.) Thank you!!!You manage an ice cream business and want to buy a new store from which to operate. The sales price of the new building is 800 kEUR, which you finance from equity. After 3 years you sell the building for its original purchase price. Accounting rules do not allow you to depreciate real estate. Projected sales from the new building for the first year are 480 kEUR, which is expected to grow by 5% every year. The wholesale value of the ingredients as well as overhead is 40% of your sales every year. You need to keep inventory of 10% of sales in order to ensure smooth operation of the store. Inventory needs to be available at the beginning of each fiscal year. At the end of the project, after 3 years, the inventory (fresh milk and such) is worth nothing, and the firm is not going to buy inventory for the time after it has sold the building. Your customers pay cash, and you also pay cash for the ingredients on the wholesale market. Corporate tax is 20%, and the cost of equity capital is 13%.…Mark Stevens is considering opening a hobby and craft store. He would invest $50,000 to purchase equipment and furnishings and another $100,000 for inventories and other working capital needs. Rent on the building used by the business will be $25,000 per year. In addition to building rent, other annual cash outflows for operating costs will amount to $44,000. Mark estimates that the annual cash inflow from the business will amount to $100,000. Mark plans to operate the business for only six years. He estimates that the equipment and furnishings could be sold at that time for about 10% of its original cost. Mark's discount rate is 16%. All cash flows, except for the initial investment, would occur at the ends of the years. Required: Compute the net present value of this investment.