PART A

In this assignment explain and show the details of all your calculations (typing them). If the details are not shown you will not receive any marks. Handwritten responses will not be accepted.

Wherever you feel an interest calculation is required, assume the rate of interest to be 10%.

Information:

A young college student, John, decides to make computers in a small workshop. A single computer consists of the following components, that cost the amounts given:

Components Cost in $ per computer

Picture tube for monitor:	20
Bare chassis	15
Passive resistors	25
Active ICs	70
Cabinet	40
Speakers /accessories	20

Other Costs and Expenses:

In addition to the above part and component costs: John has one engineer (whom he cannot do without), and whom he pays $ 24,000 a year for his services. This engineer has been employed on a five-year contract, that cannot be breached. John also has rented the workshop with a lease that cannot be broken, paying $6,000 a year as rent. Assume Johns venture has no other annual costs. As initial investment, John has also spent $ 100,000 on manufacturing plant and equipment that should be usable for a period of five years.

Q6: Suppose John finds demand to be 1400 computers per year, so he makes this number of computers annually. Now what is his break-even price?

Q7: Assume the production level of 1400 computers per year. John finds that he has to maintain an average component inventory equal to 2 months production, finished goods in warehouses amount to three months production, payments are made by dealers and distributors two and a half months after purchase. The annual rate of interest relevant to Johns business is 10%. Now what is the break even price for John?