Question
Consider a bicycle lock project as per provided data set. Evaluate whether this project is worth undertaking for an existing bicycle seller. A bicycle company
Consider a bicycle lock project as per provided data set. Evaluate whether this project is worth undertaking for an existing bicycle seller. A bicycle company is considering adding manufacturing of bicycle locks to their business line.Labour costs, raw materials costs, and turnover expected are provided. 3% inflation has already been applied to these costs. A quarter of the existing sales head's time (she is already employed by the company) is now being dedicated to selling bicycle locks. Her salary is USD50,000. The sales head uses the remaining three quarters of her time selling the bicycles the company produces. The company will still hire a salesperson, whose salary at Year 0 is now USD35,000. The tax rate, capital expenditure, discount rate, and depreciation are given in the "Base Data" table below. Inventory and raw materials are held for 4 and 2 weeks, respectively. The company pays its suppliers for raw materials 4 weeks after their delivery. However, the company also receives payment for locks 1 week after purchase. The project ends in Year 12 and all working capital is returned.To establish the factory, the company needs $800,000 for the factory, and $200,000 to buy land where to put the factory. Note: for corporate tax rate on losses, consider that the company has other profitable business lines in the company beyond the loss the project may incurr.
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