You are graduation in June and would like to start your own business making wine

Question

You are graduation in June and would like to start your own business making wine coolers. You collect the following information on the initial costs: Cost of plant and equipment = $500,000 Licensing and legal costs = $50,000 You can claim an investment tax credit of 10% on plant and equipment. You also have been left a tidy inheritance that will cover the initial cost, and is currently invested in a CD earning 10% You estimate that you can sell one million bottles a year at $1/bottle. You estimate your costs as follows: Variable costs/bottle = 50 cents Fixed costs/year = $200,000 Adding up state, local and federal taxes, you note that you will be in the 50% tax bracket. To be conservative, you assume that you will terminate the business in 5 years and that you will get nothing from the plant and equipment as salvage. (You also use straight line depreciation) As a final consideration, you note that starting this business will mean that you will not be able to take the investment banking job you have been offered (which offered $75,000/year for the next five years) Should you take on the project?

Explanation / Answer

yes since your getting profit

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