PART A

In this assignment explain and show the details of all your calculations (typing them). If the details are not shown you will not receive any marks. Handwritten responses will not be accepted.

Wherever you feel an interest calculation is required, assume the rate of interest to be 10%.

Information:

A young college student, John, decides to make computers in a small workshop. A single computer consists of the following components, that cost the amounts given:

Components Cost in $ per computer

Picture tube for monitor:	20
Bare chassis	15
Passive resistors	25
Active ICs	70
Cabinet	40
Speakers /accessories	20

Other Costs and Expenses:

In addition to the above part and component costs: John has one engineer (whom he cannot do without), and whom he pays $ 24,000 a year for his services. This engineer has been employed on a five-year contract, that cannot be breached. John also has rented the workshop with a lease that cannot be broken, paying $6,000 a year as rent. Assume Johns venture has no other annual costs. As initial investment, John has also spent $ 100,000 on manufacturing plant and equipment that should be usable for a period of five years.

Q 1

(a): Considering the Information given, what is Johns annual (yearly) profit or loss, if he manufactures and sells 300 computers a year and prices each at $ 250.

(b): John buys materials for 320 computers in the year 2004. However, he sells only 300 computers at a price of $ 280 each in 2004, and continues in business for the years that follow.

(b 1) Now what is his profit or loss?

(b 2) Calculate the following ratios: Profits as a percentage of sales, Profits as a percentage of costs, and if John has invested

$100,000 as his initial capital investment, then calculate the return on initial investment.