Question

Problem 1 The XYZ Tile Co. has decided to secure its tile clay from a property owned by John Doe, adjacent to the tile plant. The company has made a royalty contract with Mr. Doe according to which Doe's holdings will supply the company's need of 200,000 tons per year for the next 15 years before the clay is exhausted. For the first five years, the company will pay a royalty of $1 per ton of clay. For the next ten years, the royalties will double to $2 per ton of clay. The president of the XYZ Tile Co. has just learnt that Doe would consider an outright sale of his land to the company. By purchasing this land, the company would no longer have to pay royalty for the clay removed. It is believed that at the end of 15 years, when the clay is exhausted, the land can be sold for $30,000. a. Determine the maximum price at which XYZ Tile Co. can purchase the land, so that buying the land is more attractive than paying royalties. The MARR for the company is 15% per year. b. Mr. Doe is in relatively poor health. He feels he cannot manage and check the tonnage removed himself and that he will need to employ a part-time engineer to survey the clay removal at a cost of $2000 a year. In trying to decide how much he should ask for the land (should he decide to sell it), he considers a MARR of 10% per year, what should his asking price be? c. The XYZ Tile Co. purchased the property at Mr. Doe's price and the adjoining parcel of land for an additional $1 million on January 1, 2016. A factory was built on the adjoining land for $300,000 with tile-making equipment accounting for $150,000. The production started on June 1, 2016. The company hired 50 employees at an hourly rate of $20 plus 20% of the hourly rate for benefits. The employees started work on the same date as incurred an additional 10% of the equipment cost as operational expenses. The gross revenue generated for the first year was $0.5 million. Determine the taxes paid. (Hint: if the taxes are negative, the company pays $0 as taxes) production started and worked 8-hour shifts for five days in a week. The company also

Answer 1