c. Demitu has just graduated and obtained her MSc degree in computer Science. Wh

Question

c. Demitu has just graduated and obtained her MSc degree in computer Science. While she was doing her postgraduate study at AAU, she was working at different companies on part-time managed to save birr 200,000. As an experienced professional in the area of computer science she had a number of attractive jobs offers which she instantly rejected all of them to start her own business. One particular is very attractive job offer with a monthly Salary of birr 10,000 has made her to think twice as to the rationality of her decision of Starting her own business and there by realizing her dream of being and ……- her own boss. She decides to open the business she is going to put all of her savings of birr 200,000 which is currently in her bank account earning 5% interest annually Demitu has estimated first year expense to include the following items Expense in birr Cost item Cost of products and services Selling expenses Administrative expenses Interest payment (bank loan) 300,000 155,000 45,000 25,000 Legal expensed to start the business 20,000 Property tax 55,000 Do You think should be the minimum amount of her first year revenue to go ahead with the minimum amount to start any business has to be at least equal to the estimated business?

Explanation / Answer

Minimum amount of first year Revenue = Cost to be Incurred + Revenue to be lost

Cost to be incurred = 300000 + 155000 + 45000 + 25000 + 20000 + 55000 = 600000 BIRR

Revenue to be lost = Salary to be lost + Interest to be lost

= ( 10000 * 12 ) + ( 200000 * 5% )

= 120000 + 10000

= 130000 BIRR

Minimum amount of first year Revenue = 600000 + 130000 = 730000 BIRR

Therefore, minimum amount of first year Revenue to start business = 730000 BIRR

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