Dr. Farnon is considering adding an apprentice to his veterinary practice in Yorkshire. He is considering hiring Dr. Herriot for £208 per year plus room and board for the next five years. He has free space in his house and it should cost £20 per year to feed Dr. Herriot. Adding Dr. Herriot to the practice should increase his annual revenues by 50%, currently £1100, and increase his general costs by 35%, currently £400. He will also need to immediately increase his inventory of medicines and equipment by 20%, currently £3200, this increase in inventory cannot be recovered until the project ends in five years. His receivables run at 15% of his revenues and his payables run at 5% of his general costs. Dr. Farnon has just purchased a new truck to replace his old truck, but Dr. Herriot will need to use the old truck so this will mean that he cannot sell it. The old truck could be sold today for £500 but its value in the books is £700. It is being depreciated in a straight-line fashion to £0 over the next two years.
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