Question
Corporate finance problem I could us assistance with the structure to solve: I am planning to leave a job that pays $150,000.00 per year to
Corporate finance problem I could us assistance with the structure to solve:
I am planning to leave a job that pays $150,000.00 per year to run my own company for the next 10 years. I am planning to run a bowling alley. I will have an initial investment of $1,000,000.00 for the equipment which I expect to last for 10 years. I do not expect any salvage value. I will use straight line depreciation. I have $30,000 in value in each of year 1 and 2 being donated in time working, but it is not enough so I plan to hire a full time employee for $50,000 per year for the 10 years. I expect revenue of $500,000 for each of the first 5 years then revenues of $1,000,000 for each of the remaining years, 6 thru 10. Material costs will be $250,000.00 per year for the 10 years. I will need working capital of $45,000 during the first 5 years then I plan to keep working capital at $55,000 for the remainder of the 10 years. Helping with material costs, I have discovered supplies worth $25,000.00 that could reduce my material costs by $25,000 per year for the first 5 years. I will be financing this partly with debt. I will have an interest expense of $35,000.00 per year. If a discount rate of 10% is right for the cash flows, should I take this path? The corporate tax rate is 35%.
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