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You are graduation in June and would like to start your own business making wine coolers. You collect the following information on the initial costs:
You are graduation in June and would like to start your own business making wine coolers. You collect the following information on the initial costs: Cost of plant and equipment = $500,000 Licensing and legal costs = $50,000 You can claim an investment tax credit of 10% on plant and equipment. You also have been left a tidy inheritance that will cover the initial cost, and is currently invested in a CD earning 10% You estimate that you can sell one million bottles a year at $1/bottle. You estimate your costs as follows: Variable costs/bottle = 50 cents Fixed costs/year = $200,000 Adding up state, local and federal taxes, you note that you will be in the 50% tax bracket. To be conservative, you assume that you will terminate the business in 5 years and that you will get nothing from the plant and equipment as salvage. (You also use straight line depreciation) As a final consideration, you note that starting this business will mean that you will not be able to take the investment banking job you have been offered (which offered $75,000/year for the next five years) Should you take on the project
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