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  #1  
Old 11-23-2012, 10:03 PM
nguyenduc247 nguyenduc247 is offline
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Default How we investment. Please help me!!!!

Harry Ball, a sole proprietor, owns two warehouses in Sydney. One he leases out for $80,000 pa (paid at the beginning of each year) and in the other he assembles imported red and white wheelbarrows. He is considering the idea of using the leased warehouse to make red and white i-tech canoes as he believes there would be a high demand for these superior craft over the next eight years. After that time he believes that they will be superseded by a better model and the market will no longer exist.
He has spent the last 12 months researching this proposal (at a cost of $10,000) and has come up with the following information for the next eight years, at which time he will sell up in Sydney and retire to Melbourne.
a. He forecasts that he can sell 300 canoes a year at a price of $2,750 each.
b. Variable costs per unit will be 60% of the selling price.
c. His fixed costs such as labour and rates will be $125,000 per annum.
d. New machinery will cost $400,000 and cost $6,000 to ship and install.
e. Depreciation will be straight line to zero over the 8 year life of the project.
f. Harry believes the equipment should sell for $30,000 at the end of the project.
g. Harry will initially have to invest $50,000 in working capital, and expects to have to make additional investments of $10,000 for the next three years, as sales increase.
h. Given the risk level, Harry requires a return of 15% on this investment.
i. Harry faces a tax rate of 30%.
Required:

i. What is the net present value (NPV) of this project?
ii. What is the internal rate of return (IRR) of this project?
iii. What is the profitability index (PI) of this project?
iv. Based on (i) – (iii), should Harry go ahead? Why?
v. What is the minimum number of canoes that Harry has to sell to make this project
acceptable?
vi. If Harry sells 300 canoes a year, what is the minimum price that Harry can charge for a canoe to make this project acceptable?
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  #2  
Old 11-23-2012, 11:21 PM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

It sounds like another school assignment question ?

I don't know the answer but I would like to know how the professor made his calculations and what he come up with.

Does Harry have a market to sell those canoes ?
How many competitors are there ?
Where is Harrie's market buying their canoes ?

I don't think its a good business because it requires too much capital and the items he sells are too expensive which means that not everyone can buy a canoe. Does Harry have a self finance plan ? How does Harry plans to market his product ? Does Harry have customers ?

If Harry were buying and established canoe business it would be a different story if the store is selling cheap in relation to its yearly earnings but that is not the case. Still is an interesting exercise to solve.

Tell me how it came out Nguyenduc247. Sorry I couldn't be of more help. But I wouldn't engage in that business . It sounds too risky. It's business proposal seemingly based on assumptions not facts. Warren Buffett doesn't like new businesses .

Do you think this business will be around in 10 yrs from now ? I don't know that. If can't answer that question I don't invest.

Welcome to our forum,

Last edited by Fredy Atwater; 11-23-2012 at 11:27 PM.
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  #3  
Old 11-23-2012, 11:30 PM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

To all my students :

You can also solve this business puzzles when you have the main Buffett questions in your mind. If you think like Buffett you will ask the same questions Buffett asks, wouldn't you ?
I would because I trust Buffett knowledge. You will too as you develop your business common sense. Buffettology is your best bet.
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  #4  
Old 11-23-2012, 11:54 PM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

Let me give you an example with a small business.

My uncle Fidel saved money after he worked for 10 years in NYC as factory employee. He moved back to Mexico City.My uncle had a business plan. He started searching for an OLD business in the newspaper. He found an old Hardware store in a very populated area of Mexico City. The owner was old and he wanted to retire. My uncle did not know anything about hardware stores. But he sure had a good business plan.

The owner taught my uncle the basics of the business. My uncle learned quickly. My uncle then taught the business to my cousins. My uncle bought the hardware store in the 70's. After 15 years more or less my uncle did so well with the business that he bought the land property of his hardware store and he stopped paying rent. At the beginning of his business endeavor he could not afford a car, so he traveled by bus back and forth to the hardware store everyday for some years until he afforded his first car. My uncle died like 30 years after he bought the hardware store. My cousins inherited the business. One of my cousins died. The hardware store is still running after more than 40 years since my uncle Fidel bought the hardware store. My cousin who now is the owner expanded the business by renting a space to store cement and bricks and other construction materials.

I tried to copy my uncle but I failed. Why ?

Did I have a chance to follow his business plan ?

No.

I started a new Hardware store from scratch. In less than 6 months I decided to close the business and move back to NYC. There were no gains, just loses.

This is why I am not in favor of new businesses if they aren't already established. Few are the business people that start a new business from scratch and succeed in the long term. Why take a chance then with a new business ?

Last edited by Fredy Atwater; 11-23-2012 at 11:58 PM.
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  #5  
Old 11-24-2012, 12:42 AM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

The CEO of Zappos, the biggest online shoe store, is one of those business people that could start a business from scratch and do well. Zappos CEO became a multimillionaire before starting the shoe company by selling his new company to Yahoo! But Zappos was a completely different story. Zappos was not an immediate success. The CEO put millions of his own money at risk to keep that company alive. After more than 10 years he sold the company to Amazon for more than $1 billion and he still runs it.

If you haven't bought shoes from them you should there is nothing better out there. They're #1 in the shoe business. Give Zappos a try. Your'e gonna love them !

The first question the Zappos CEO had,was, the size of the online shoe market.
You can call Zappos and they will mail you the Zappos book story for free.

Last edited by Fredy Atwater; 11-24-2012 at 01:05 AM.
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  #6  
Old 11-24-2012, 04:49 AM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

Harry Ball, a sole proprietor, owns two warehouses in Sydney. One he leases out for $80,000 pa (paid at the beginning of each year) and in the other he assembles imported red and white wheelbarrows. He is considering the idea of using the leased warehouse to make red and white i-tech canoes as he believes there would be a high demand for these superior craft over the next eight years. After that time he believes that they will be superseded by a better model and the market will no longer exist.

Based on the Tao Of Warren Buffett what do you think of this business plan ?

Harry intends to invest in the first year $50 thousand and he expects a 15% return on his investment.

What do you think about that ?

Do you think is worth it asking the following questions ?

i. What is the net present value (NPV) of this project?
ii. What is the internal rate of return (IRR) of this project?
iii. What is the profitability index (PI) of this project?
iv. Based on (i) – (iii), should Harry go ahead? Why?
v. What is the minimum number of canoes that Harry has to sell to make this project
acceptable?
vi. If Harry sells 300 canoes a year, what is the minimum price that Harry can charge for a canoe to make this project acceptable?

nguyenduc247, is your School located in Sidney ?
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  #7  
Old 11-24-2012, 04:50 AM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

I think this is a perfectly lousy business plan.

The only way to get good answers is by asking good questions.
How can we get a good answer making a bad question. That's what this problem is. I was distracted by so much information. The foundation of the question is bad. Later on I'll tell you why. Its simple just do the math.

If a 15% return of $50 thousand is $7,500 a year how does Harry intends to survive? Maybe his employees will make more money than him. Is he going to have employees ?

This is a business not an investment and the question is made as if it were an investment. For any investment on which you don't physically have to work and you don't have any liabilities a 15% rate of return is good. Not for a business like the one Harry is thinking of. Its a bad question in my opinion.

Last edited by Fredy Atwater; 11-24-2012 at 05:02 AM.
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  #8  
Old 11-30-2012, 06:52 AM
rockymountain rockymountain is offline
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Default investment

People who have capital to invest often decide to use it on a small business, despite the fact that this is one of the most time-consuming and risky ways to invest money. Those who invest capital in a small business, though, can get many rewards from their endeavors, both internally and financially. With careful planning, it is possible to make money and feel good about the success of the business, but only with the right investment opportunity at the right time. After finding an investment opportunity, entrepreneurs must try to be as frugal as possible if they are to be successful. It is a waste of capital to invest in expensive business planning software, for example, when you could put the right spreadsheets together yourself that will do the same thing. It is also important to be realistic when you invest capital in a small business, and downsize when necessary.

Most entrepreneurs have big dreams, but without a league of fellow investors it's best to start as small as possible and upsize only when it's absolutely feasible. And finally, the investment opportunity, whether it is selling goods or services, has to be sound. Sometimes people who have some extra capital to invest just want to put their money in something fun and exciting, but if other people aren't going to spend money on the product it will be a big waste. Try to invest capital in something that will require minimal advertising, little or no staff (at least in the beginning) and simple operations.

And then, of course, as the business becomes more successful you can hire more people and increase the size of the operation. Being prudent may not be as much fun, but you also won't be having any fun if your investment goes down the drain.
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  #9  
Old 11-30-2012, 10:58 AM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

Hi Rockymountain :

Welcome to our forum.

Do you have plans to open a business ?

Thank You,

Fredy
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  #10  
Old 12-04-2012, 11:59 AM
capital22012 capital22012 is offline
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Default Re: How we investment. Please help me!!!!

Hi,
I am also facing same problem.
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  #11  
Old 12-04-2012, 02:31 PM
Fredy Atwater Fredy Atwater is offline
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Default Re: How we investment. Please help me!!!!

Your so funny Capital 22012.

Thanks for the laugh !

fredy
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  #12  
Old 12-05-2012, 11:57 PM
Richarddavis Richarddavis is offline
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Default Re: How we investment. Please help me!!!!

Thank you for sharing this information.....
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  #13  
Old 12-06-2012, 12:40 AM
rockymountain rockymountain is offline
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Default investment.

advise regarding investment;
Run through the financials of the HOA. Ensure that it is financially sound, holds adequate reserves, and is compliant with its fiduciary responsibility and articles of association

Establish what levy increases there have been over the past three years, and what the policy is going forward

Be aware of the estate’s rules, regulations and architectural guidelines (to avoid unpleasant surprises after taking occupation)

Verify that the HOA is well run and applying best practice in the management of the estate.

Confirm that the HOA is constantly updating and enhancing implementation models in line with the estate’s strategic plan

Make sure that the all-important social aspects of living on the estate form part of the HOA agenda. These include the clubhouse, walking trails, play parks and sporting facilities.

Furthermore, walk or drive around the entire estate to ensure that it is in good shape:

Start with the main gate, which should be well organised and manned by helpful uniformed guards

Examine the green areas and parks. Is there a feeling of consistency? Are they proportionally developed across the entire estate? This will indicate either a well-implemented master plan or a haphazard approach

Clean and well maintained roads, walkways and pavements will confirm that an efficient maintenance plan is in place

There should be consistency of architecture and design across the entire estate. Homes that are half built, or inconsistent with the overall guidelines, should be seen as a warning flag.
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  #14  
Old 12-21-2012, 03:02 AM
tayloraustin tayloraustin is offline
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Default Re: How we investment. Please help me!!!!

As an investor must have the knowledge to the kind of investment your targeting and of course check for the market and as much as possible seek for professional.
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Old 01-01-2013, 10:31 PM
st jacob st jacob is offline
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Default Re: How we investment. Please help me!!!!

Hey its a common question every one want to know that how we can invest. And it is better to have some knowledge and information before investing. So for all of your problem here is a nice website of business coaching. you can visit this site below.
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