Problem:
Jennifer Job is considering opening her own business, Jenny's Jungle Gyms. She has gathered information on the assembly and installation of jungle gyms for nursery schools, elementary schools, parks and residences.
Jenny would order mix and match parts for custom designs, assemble and install the gyms for the customer. Jenny believes that, with a $30,000 vehicle with a $5,000 salvage value after 10 years and $5,000 in assembly tools and equipment (also a 10-year life), she will be able to generate $70,000 a year in sales. Her other projections include an initial inventory of $15,000, assembly training for $2,500, cost of goods sold (COGS) approximately $35,000, selling expenses of $9,000 and general and administrative expenses of $7,000. She expects to pay 25% of her earnings in taxes and must earn a 15% return. Is this a profitable business under these conditions?