Question.2620 - Mr. Ahmad has been working for 5 years at XYZ Co. and is currently employed as a senior software engineer. His current/latest benefit package includes the followings; ? Current monthly (20-day working) gross salary of $20,000. o %50 extra payment if he works on Saturdays. ? One-month (20-day working) paid vacation. ? Full coverage family health insurance, which is financially equal to $30,000. ? One-month gross salary (based on the latest figure) per year completion as indemnity. His current contract offers a yearly salary increase %5 higher than the inflation rate. The country has a personal income tax scheme of $50,000 tax-exempt, if the yearly gross income is between $50,000 and $100,000, and %20 if it is between $100,000 and $250,000, and finally %30 if it is greater than $250,000. Mr. Ahmad thinks that he has enough experience and should do his own business, opening up his own consulting firm. He estimates that he needs $1,000,000 for starting up his business. He has $400,000 on his investment/savings account, which earns yearly %2 higher than inflation rate and he will use his all savings and get 3-year murabaha (loan) of $600,000 from his financial institution to open up his business. He will pay $200,000 principle each year and the current and next year’s pre-determined financing rates are %25, but it will increase to %30, and %40 in the following years respectively according to the contract. According to his employment contract, if he quits his job before completing 10 years, %50 of his indemnity will be cut. Furthermore, if he starts his business, due to the business nature, he will have 6 days weekly work including Saturdays and based on this, his projected revenues during the 3-year period of operation are $1,500,000, $2,000,000, and $3,000,000. On the other hand, his expected expenses for the first year are as follows: ? Monthly total salaries to employed people are $80,000. ? Yearly supplies and equipment expenses are $150,000. ? He has $600,000 rent contract of 3 years, each year of $200,000 for the office. The rent will be fixed for 3 years. ? Monthly total utilities are $5,500. ? One-time license and certification from the government is $25,000. ? The country has a business income tax scheme of no income tax until $100,000. However, it will be between $100,000 and $250,000 and %20 between $250,000 and $500,000, and %30 if it is greater than $500,000. ? Yearly expected inflation rate is %20, 25%, and 30% respectively for the next 3- years. Thus, all expected expenses are projected to increase with inflation rate if not mentioned otherwise.Financial Management CASE STUDY Dr. TalatUlussever(FIN 501) Spring 2023 GUST Based on then assumptions and projections given above; a) Calculate the explicit cost of each year for three years of opening up his own business. b) Calculate the implicit cost of each year for three years of opening up his own business. c) Calculate the business profit of each year for three years of opening up his own business. d) Calculate the economic profit of each year for three years of opening up his own business. e) Briefly discuss whether Mr. Ahmad should quit his current job and start his own business based on the three-year projection. f) Raise an argument against your answer in e. What might change the answer you gave in e? Briefly discuss.
Answer Below:
a xxx explicit xxxx for xxxx year xx opening xx his xxx business xxx the xxxx three xxxxx can xx calculated xx follows xxxx Particular xxxxxxxxxxx Amount xxxxxxx Salaries xxxxxxxx and xxxxxxxxx expenses xxxx Utilities xxxxxxx and xxxxxxxxxxxxx Finance xxxx Total xxxx Particular xxxxxxxxxxx Amount xxxxxxx Salaries xxxxxxxxx by xxx to xxxxxxxxx Supplies xxx Equipment xxxxxxxx increased xx due xx inflation xxxx same xx Year xxxxxxxxx increased xx due xx inflation xxxxxxx Cost xxxxxx Tax xxxxx Year xxxxxxxxxx Calculation xxxxxx Remarks xxxxxxxx increased xx due xx inflation xxxxxxxx and xxxxxxxxx expenses xxxxxxxxx by xxx to xxxxxxxxx Rent xxxx as xxxx Utilities xxxxxxxxx by xxx to xxxxxxxxx Finance xxxx Income xxx Total x The xxxxxxxx cost xxxxxx to xxx opportunity xxxx of xx Ahmad x resources xxxxxxxxx his xxxx and xxxxxxx In xxxx case xx consider xxx salary xx a xxxxxx software xxxxxxxx at xxx Co xx the xxxxxxxxxxx cost xxxx Particular xxxxxxxxxxx Amount xxxxxx Insurance xxxxx Year xxxxxxxxxx Calculation xxxxxx Salary xxxxxxxxx Total xxxx Particular xxxxxxxxxxx Amount xxxxxx Insurance xxxxx c xxx business xxxxxx of xxxx year xxx three xxxxx of xxxxxxx up xxx own xxxxxxxx is xxx revenue xxxxx the xxxxxxxx cost xxxxx can xx calculated xx follows xxxx - x loss xxxx - xxxx - x The xxxxxxxx profit xx each xxxx for xxxxx years xx opening xx his xxx business xx the xxxxxxx minus xxx explicit xxx implicit xxxxx Year x - x loss xxxx - x - xxxx Year x - x Based xx the xxxxxxxxxx projection xx Ahmad xxxxxx thoroughly xxxxxxxx his xxxxxxxx to xxxxx his xxxxxxx job xxx start xxx own xxxxxxxx The xxxxx year xx operation xxxxx a xxxx of xxxxxxxxxx a xxxxxxxxxxx start xxxxxxx the xxxxxx and xxxxx years xxxxxxx a xxxxxx of xxx respectively xxxxxxxxxx potential xxxxxx and xxxxxxxxx profitability x A xxxxxxxxxxxxxxx against xx Ahmad xxxxxxxx his xxxxxxx job xxx venturing xxxx his xxx business xxxxxxxx around xxx financial xxxxx involved xxxxxxxx a xxx business xxxxxxxxxxxx a xxxxxxxxxxx investment xxx the xxxxxxx loss xx the xxxxx year xxxxxxxxx potential xxxxxxxxx hurdles xxxxxxxxxxx Mr xxxxx s xxxxxxx job xxxxxxxx stability xxxxxxxx and x predictable xxxxxx Moreover xxxxxxx his xxx before xxxxxxxxxx years xxxxx result xx a xxxxxxxxx in xxx indemnity xxxxxxx factors xxxxx potentially xxxxx the xxxxxx in x Market xxxxxxxxxx Changes xx the xxxxxxxx market xxxxxx or xxxxxxxxxxx landscape xxxxx impact xxx success xx failure xx the xxxxxxxx Business xxxxxxxxxx Mr xxxxx s xxxxxxx to xxxxxxxxxxx manage xxx adapt xx challenges xx running xxx business xxxx play x pivotal xxxx in xxx success xxxxxxxx risk xxxxxxxxx Mr xxxxx s xxxxxxxxxxx to xxxxxx risks xxx his xxxxxxxxxx in xxx entrepreneurial xxxxxx may xxxxxxxxx his xxxxxxxx Support xxxxxxx The xxxxxxxx of xxxxxxx advisors xx a xxxxxxxxxx business xxxxxxx can xxxxxxxxxxxxx impact xxx success xx a xxx venture xx is xxxxxxx for xx Ahmad xx carefully xxxxxx these xxxxxxx evaluate xxx readiness xxxxxx and xxxxxxxxx stability xxx seek xxxxxxxxxxxx guidance xxxxxx making x well-informed xxxxxxxxMore Articles From Finance
.ico)
.ico)
.ico)
.ico)
