Personal Finance (MindTap Course List)
13th Edition
ISBN: 9781337099752
Author: E. Thomas Garman, Raymond Forgue
Publisher: Cengage Learning
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52. Appliances Unlimited (AU) sells refrigerators. Anyrefrigerator that fails before it is three years old isreplaced for free. Of all refrigerators, 2% fail duringtheir first year of operation; 4% of all one-year-oldrefrigerators fail during their second year of operation;and 6% of all two-year-old refrigerators fail duringtheir third year of operation.a. Use simulation to estimate the fraction of all refrigerators that will have to be replaced.b. It costs $750 to replace a refrigerator, and AU sells15,000 refrigerators per year. If the warranty periodwere reduced to two years, how much per year inreplacement costs would be saved?
Part II
Natalie is also thinking of buying a van that will be used only for business. The cost of the van is estimated at $36,500. Natalie would spend an additional $2,500 to have the van painted. In addition, she wants the back seat of the van removed so that she will have a lot of room to transport her mixer inventory as well as her baking supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,500. She expects the van to last 5 years, and she expects to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,400. Natalie estimates that at the end of the 5-year useful life, the van will sell for $7,500. Assume that she will buy the van on August 15, 2020, and it will be ready for use on September 1, 2020.
Natalie is concerned about the impact of the van’s cost on her income statement and balance sheet. She has come to you for advice on calculating the van’s depreciation.
Instructions:
Determine the cost of the van.
Prepare…
QUESTION 4
Joseph Giovine owns a successful hole-in-the-wall bagel shop called Peach Tree Bagels. Joseph wants to expand the shop by leasing the space next door for $1,000 per month and adding tables and chairs so that customers can dine in. He figures that the tables and chairs will cost $5,000 and that the bagel machine, which cost $4,500 five years ago, will have to be scrapped in favour of a larger machine costing $7,400. He thinks sales will increase by $5,500 per month. Variable costs are 55% of sales.
A.
What are the relevant costs and benefits of expanding into the new space?
B.
What are the irrelevant costs and benefits of expanding into the new space?
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- You are thinking of buying a van that will be used only for business. The cost of the van is estimated at $39,145. You would spend an additional $2,725 to have the van painted. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,330. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,500. You estimate that at the end of the 5-year useful life the van will sell for $7,200. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021. You are concerned about the impact of the van’s cost on your income statement and balance sheet. You will need to calculate the van’s depreciation. Required part C Determine the cost of the van. Prepare three depreciation tables for 2021,…arrow_forwardYou are thinking of buying a van that will be used only for business. The cost of the van is estimated at $39,145. You would spend an additional $2,725 to have the van painted. In addition, you want the back seat of the van removed so that she will have lots of room to transport your mixer inventory as well as your catering supplies. The cost of taking out the back seat and installing shelving units is estimated at $1,330. You expect the van to last about 5 years, and you expect to drive it for 200,000 miles. The annual cost of vehicle insurance will be $2,500. You estimate that at the end of the 5-year useful life the van will sell for $7,200. Assume that you will buy the van on August 15, 2021, and it will be ready for use on September 1, 2021. You are concerned about the impact of the van’s cost on your income statement and balance sheet. You will need to calculate the van’s depreciation. The cost of the van total is: $43,200(van amount+paint+modifications) Required part C Prepare…arrow_forwardHelen of Hamburgers by Helen would like to take advantage of the lucrative food truck restaurant service. Currently Helen operates a popular restaurant in the suburbs. The food truck would allow her business to expand into the city and take advantage of the lunch crowd. Hamburgers by Helen currently sells 1,500 hamburgers per month. Helen charges $4.50 per hamburger. Helen estimates that the food truck would allow for a 40% increase in revenue from food truck sales. She also expects a 20% increase in sales at her restaurant due to the exposure from the food truck. She expects to spend $25,000 on a used truck and an additional $15,000 to have it converted into a working food truck. The maintenance and fuel cost are estimated at $500 per month. The city requires a license that costs $1,000 on an annual basis. Two additional employees would be hired at a cost of $12.00 per hour with an estimated 100 hours per month per employee. Additional advertising will cost $2,000 per year. Should…arrow_forward
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