ADMS3530 3.0 Assignment #2Page 1P/ADMS3530 3.0 Fall 2009 Assignment #2 Instructions:(1) This assignment is to be done individually. You must sign and submit the standard cover pagesupplied as the last page of this assignment. (2) This assignment is due in the last class. (3) This assignment must be handwritten. Work that is too difficult to read due to messiness and poor handwriting will receive zero credit. You must show your work to receive full credit. (4) This assignment carries a total mark of 100 points. (5) For Internet section students, the assignment must be uploaded to the Centre for Distance Education: http://www.atkinson.yorku.ca/cde/assignmentuploadand identified precisely in accordance with the course outline by Tuesday, December 1, midnight. (6) Late assignments will not be accepted whether for technical or any other reason. Question 1 (22 marks) Since your graduation from York last spring you have been struggling to find a job in this tough economic climate. Your friend, Bob, a recent engineering graduate who is also unemployed, wants you to invest in his new small business venture. His inspiration has been the 7 hour lineups for the H1N1 vaccine and the two day lineups for the U2 concert. Bob’s idea is a heated folding chair with inflatable pillows, insulated pockets for food and drinks and a collapsible umbrella. He has submitted the design to the patent office and has also asked for a quote for manufacturing the chair from a auto servicing firm in Oshawa. He has incorporated his business and called it Wonderful Wait Inc. This manufacturing firm estimates an initial outlay of $40,000 for the equipment required for the project. Total R&D for the chair has already cost $6,000. The equipment falls into a CCA class with a 30% declining balance rate and an expected salvage value of $3,000 at the end of year 6. Bob expects the chairs to sell for $26 each and variable costs will be 40% of sales. The chairs will be sold via the internet so there is no middle man. He expects to sell 500 chairs in the first year increasing by 20% each subsequent year until the end of year 6 when he expects competitors to erode his margins and the business will close. Fixed costs are estimated to be $1800 in year 1 and increasing by 5% for each of years
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