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January 30, 2015

January 30, 2015

Posted by **RICKY** on Wednesday, July 14, 2010 at 12:04pm.

Cost of Plant & Equipment = $500,000

Licensing & Legal Costs = $50,000

You also have been left a tidy inheritance that will cover the initial cost, and is currently invested in a bank account 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 and local taxes, you note that you will be in the 50% tax bracket. To be conservative, you assume that you will terminate the business in five years and that you will get nothing from the plant and equipment as salvage (you also use straight line depreciation.). Should you take on the project? (show all the calculation)

- FINANCE -
**Andrew**, Wednesday, July 14, 2010 at 1:35pm1 million bottles at $1 a bottle is $1 million minus 50 cents a bottle is $500,000 minus $200,000 fixed costs per year is $300,000 minus $150,000 in taxes is $150,000 left plus 10% per year from the bank is $165,000 times 5 years is $825,000 made. I would do it.

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