A real estate construction company currently sends out its doors for painting to specialist firms. During the last financial year, the number of doors painted was 1,826 at a cost of $91,300. You are considering the possibility of this work being undertaken by the company in a workshop set up for this purpose. The following information relates to the project:

The paint shop can be set up in an existing warehouse that has not been used for some years and is estimated to be worth $300,000.

Equipment costing $160,000 needs to be purchased with a life expectancy of 6 years. The residual value is estimated as $80,000 at the end of year 6.

The annual costs in today’s money of the operation are estimated to be:

Rates and maintenance	$7,920
Management	$14,400
Labour	$18,400
Head office costs	$10,000*

*the head office costs are paid in both scenarios (the doors are painted indoor or outdoor)

Based on the number of doors painted last year, the cost of consumable materials and other variable costs is estimated at $21,912.

Tax will be recoverable in year 2 and payable thereafter as shown below:

Year 2	$15,220	Recoverable
Year 3	$4,780	Payable
Year 4	$6,180	Payable
Year 5	$10,230	Payable
Year 6	$13,268	Payable
Year 7	$26,049	Payable

The head office costs are a re-allocation of existing overheads.

Required:

Do these indicators suggest that the project should be undertaken?

What other considerations should be taken into account by the company when establishing the new project? (10 marks)