You have the opportunity to buy a licence to operate a food vending cart in a lo

Question

You have the opportunity to buy a licence to operate a food vending cart in a local park. The licence would cost $1,250 per year. You expect to operate the cart each summer for the next four years, at which time you’ll graduate from university and move on to other things. You aren’t allowed to sell the licence to someone else. You would also have to purchase a cart, which would cost $7,500. You estimate that after four years you would be able to sell the cart for about $1,000. You would have to work 11 hours per day seven days a week from May 15 to September 15. You estimate that on an average day you would be able to sell $350 of food and drinks and that the cost of the food and drinks you sell, along with condiments and other supplies (such as ice, straws, cutlery, cooking fuel) would be $215 per day. In addition, the annual maintenance cost for the cart would be about $900.

You have the opportunity to buy a licence to operate a food vending cart in a local park. The licence would cost $1,250 per year. You expect to operate the cart each summer for the next four years, at which time you’ll graduate from university and move on to other things. You aren’t allowed to sell the licence to someone else. You would also have to purchase a cart, which would cost $7,500. You estimate that after four years you would be able to sell the cart for about $1,000. You would have to work 11 hours per day seven days a week from May 15 to September 15. You estimate that on an average day you would be able to sell $350 of food and drinks and that the cost of the food and drinks you sell, along with condiments and other supplies (such as ice, straws, cutlery, cooking fuel) would be $215 per day. In addition, the annual maintenance cost for the cart would be about $900.

Explanation / Answer

No.of days May 16 June 30 July 31 Aug 31 Sep 15 Total no.of days 123 Item Year 1 Year 2 Year 3 Year 4 Total Revenue 123*350 43050 43050 43050 43050 172200 Proceeds from Sale of Cart 1000 1000 Total Revenue/Proceeds 43050 43050 43050 44050 173200 Expenses License 1250 1250 1250 1250 5000 Cart 7500 7500 Annual Maintenance 900 900 900 900 3600 Operating Expenses123*215 26445 26445 26445 26445 105780 Total Expenses 36095 28595 28595 28595 121880 Net Income 6955 14455 14455 15455 51320 Opportunity Cost 6955 14455 14455 15455 51320

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