Jim Bingham Is Considering Starting a Small Catering Business

question 106

Essay

Jim Bingham is considering starting a small catering business.He would need to purchase a delivery van and equipment costing $125,000 to operate the business and another $60,000 for inventories and other working capital needs.Rent for the building to be used by the business will be $35,000 per year.Jim's marketing studies indicate that the annual cash inflow from the business will amount to $120,000.In addition to the building rent,annual cash outflow for operating costs will amount to $40,000.Jim wants to operate the catering business for only six years.He estimates that the equipment could be sold at that time for 4% of its original cost.Jim uses a 16% discount rate.(Ignore income taxes in this problem.)
Required:
Would you advise Jim to make this investment? Use Net Present Value and Profitability analysis to support your decision.

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Definitions:

Diverse Families

familial groups that vary widely in composition, including differences in race, ethnicity, socioeconomic status, and structure.

Culture

The set of shared attitudes, values, goals, and practices that characterizes an institution, organization, or group.

Race

A social construct used to categorize human beings based on physical and cultural characteristics, often leading to systemic inequalities and social stratification.

Evaluative

Relating to or involving the assessment or judgment of the quality, importance, or value of something.