The owner of a small printing company is considering the purchase of additional

Question

The owner of a small printing company is considering the purchase of additional printing equipment to expand her business. If the owner expands the business and sales are high, projected profits (minus the cost of the equipment) should be $90,000; if sales are low, projected profits should be $40,000. If the equipment is not purchased, projected profits should be $70,000 if sales are high and $50,000 if sales are low.

Are there options other than the purchase of additional equipment that should be considered in making the decision to expand the business?

If the owner is optimistic about the company’s future sales, should the company expand by purchasing the equipment?

Is the owner’s optimism or pessimism about sales the only factor that may impact the company’s profits?

The equipment to be purchased is known in the industry to have a useful life of five years. How might this impact the printing company?

Explanation / Answer

Projected Profits

If Sales are High

If Sales are Low

Equipment is purchased

$90,000.00

$40,000.00

Equipment is not purchased

$70,000.00

$50,000.00

Are there options other than the purchase of additional equipment that should be considered in making the decision to expand the business?

As per given data there are only two option whether purchase or not purchase.

If the owner is optimistic about the company’s future sales, should the company expand by purchasing the equipment?

Owner is optimistic about the high sales, Company should expand by purchasing the equipment will add excess $20,000 in net profit for the year.

Is the owner’s optimism or pessimism about sales the only factor that may impact the company’s profits?

In projections owner’s optimism or pessimism about sales the only factor that is impacting company’s profits. But in actual scenario if company goes for equipment purchase, company will generate excess $20,000 in case of high sale and in worst scenario company will incur additional loss of $10,000.

The equipment to be purchased is known in the industry to have a useful life of five years. How might this impact the printing company?

The equipment have fine years of useful life and above projection (In case of equipment purchase) account total equipment cost in first year. It will result better profit for subsequent year as well. Because cost of equipment is being covered in first year itself.

Projected Profits

If Sales are High

If Sales are Low

Equipment is purchased

$90,000.00

$40,000.00

Equipment is not purchased

$70,000.00

$50,000.00

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