Question
Sam would like to buy Rupert Fishing Company, an existing business which has been in Prince Rupert for 25 years. Sam must buy a fishing
Sam would like to buy Rupert Fishing Company, an existing business which has been in Prince Rupert for 25 years. Sam must buy a fishing boat to run the business. Boat cost $ 14 million and it will take 2 year to get it constructed and delivered to Prince Rupert. Vendor has agreed Sam to pay 50% of the boat cost at the end of year 1 and 50% on delivery. Expected useful life of the boat is 11 years from the date of delivery. Price of salmon per lb is $ 21 on first fishing year and then is expected to grow at a rate of 3 % per year. Sam expects to catch around 90,000 lbs of salmon first fishing year and the catch is expected to increase by 4 % every year. Fish boat will need to replace for $ 80,000 on 5th fishing year. What do you suggest Sam? should he purchase the business? Assume interest rate is 12% per year?
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