Posted by Damone on Thursday, October 11, 2012 at 2:52pm.
You have opened your own word processing service. You have already bought a special computer needed for word processing and paid $5,000 for it. However, due to the cost changes in the computer industry, the current price of an equivalent machine is $2,500. You could sell any used machine for 200 dollars – and no machine can be used for more than one year. If you were not word processing, you could earn $20,000 per year at an alternative job. Assume that the interest rate is 10%.
You can also hire an assistant who can do everything that you would do for $20,000 per year, and you would still continue to do word processing. One person using one computer can produce 11,000 typed pages per year, and the price per page for your service is $2.
Calculate the following three options:
You are considering three options: (1) leave your business the way it is, (2) expand your business by hiring an assistant, or (3) shut down all operations.
Based on the costs and revenues above, which should you do? Explain and show any relevant calculations.
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