Joe Shister owns and operates a small accounting office in Vancouver and is looking to expand his business by taking on an investor partner.

Joe approaches you with his entrepreneurial opportunity, and he explains how wonderful and easy your life will be once the business model is established.

Last year Joe’s office brought in $240,000 with himself and only one employee. Joe says that an individual employee can do the books and taxes for 400 small clients, and bring in $120,000.

Joe thinks some can even produce more revenue. Plus with an office front, Joe figures, we can charge higher fees.

To do this each individual employee needs some training but nothing like a Chartered Accountant professional. This leaves an employee’s compensation limited to $60,000 per year.

Joe figures that getting a place to lease that houses 10 accountants and 2 front-desk providers would be great for both of us to live easy.

Front desk people do not cost too much and the monthly lease cost would be $8,000 per month depending on location, Joe says.

Joe says, you can kick-in $200,000 and he will make it work. 50-50 partners, Joe says. You can be a silent partner and I’ll run things.

Joe says, soon you will be taking home $100,000 or more per year on such a small investment opportunity. You will get all your money back in 2 years and the rest is free.

When asked, Joe says your money invested will be used to do leasehold improvements to the office space, buy equipment and furnishings, prepare marketing materials and advertise, buy supplies, and pay a lawyer fee to set up the partnership.

Joe says, my fee for running things will only be $7,500 per month but once things are rolling I’ll only need to be there a few hours a day.

The list of things needed to do to start-up this business seems long, you understand little about business being a chemical engineer. Joe seems like a good guy but you haven’t known him long.

It would sure be nice to have the extra money in a few years and not have to work for it. And Joe says, you’re the perfect partner his opportunity.

It makes you feel good.

QUESTION:
Show how you would calculate the total cost of Human Resources for Year 1?

QUESTION:
List the other expenses the office will have to pay in Year 1 and estimate the cost of each?

QUESTION:
Will the long-lived and intangible assets have a residual value at the end of 5-years? How would you determine the amount of expense for these assets in Year 1?

QUESTION:
Does the partnership seem profitable enough to warrant the $200,000 investment? Explain why.

This question is related to business.

Answer rating: 100% (QA)

a The total cost of human resources for Year 1 would be 1 Employee salaries 60000 x 10 employees 600... View the full answer