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ADMS3530-Assignment2-F09 - ADMS3530 3.0 Assignment#2...

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ADMS3530 3.0 Assignment #2 Page 1 P/ADMS3530 3.0 Fall 2009 Assignment #2 Instructions: (1) This assignment is to be done individually . You must sign and submit the standard cover page supplied 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/assignmentupload and 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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