Question
Please solve the following problem. Please no copy or paste. Please explain why you came up with the answer. Mr. Lee operates a green grocery
Please solve the following problem. Please no copy or paste. Please explain why you came up with the answer.
Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs of New York City. Recently, a large chemical firm offered him a position as a senior engineer designing plants for its Asian operations. (Mr. Lee has a master's degree in chemical engineering.) His salary plus benefits would be $95,000 per year. A recent financial statement of his store's operations indicates the following:
Revenue $625,000
Cost of goods sold 325,000
Wages of workers 75,000
Taxes, insurance, maintenance 30,000
and depreciation on building
Interest on business loan (10%) 5,000
Other miscellaneous expenses 15,000
Profit before taxes $175,000
If Mr. Lee decides to take the job, he knows that he can sell the store for $350,000 because of the goodwill built with a steady clientele of neighborhood customers and the excellent location of the building. He would still hold on to the building, however, and he knows he could earn a rent of $50,000 on this asset. If he did sell the business, assume he would use some of the proceeds from the sale to pay off his business loan of $50,000. He could then invest the difference of $300,000 (i.e.,$350,000-$50,000) and expect to receive an annual return of 9 percent. Should Mr. Lee sell his business and go to work for the chemical company? In answering this question, also consider the following information:
- In his own business, Mr. Lee works between 16 and 18 hours a day,6 days a week. He can expect to work between 10 and 12 hours a day,5 days a week, in the chemical company.
- Currently, Lee is assisted by his wife and his brother, both of whom receive no salary but share in the profits of the business.
- Mr. Lee expects his salary and the profits of his business to increase at roughly the same rate over the next 5 years.
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