Mr.Salim runs a carpentering business in his village. Mr.Salim’s business has expanded, with revenue now reaching OMR 40,000 per year. Mr. Salim is considering moving hisbusiness into town centre premises, and employing another carpenter, who would cost OMR 6,000 per year.He has found premises that could be leased for OMR 3,500 per year payable in advance. Mr. Salim currently advertises his business in the local newspapers and business directories, at a cost of OMR 1,000 per year payable in advance. Mr. Salim will carry on with this advertising, but he will also need extensive ‘one off’ advertising to promote the move to the new premises. This ‘one off’ advertising in the local newspapers will cost OMR 2,000, which will be paid immediately. In addition to advertising the move in the local newspapers, Mr. Salimcould advertise the move on the local radio. The cost of this would be OMR 5,000, also payable immediately. Mr. Salimbelieves that having a town centre presence and the associated publicity in the local newspapers and local radiowill increase revenue, by 45%. Overheads, excluding advertising, would increase to a total of OMR 4,000 per year. Overheads currently charged to the business are OMR 1,500 per year. Direct costs such as are budgeted at 5% of revenue. The cost of capital is 10% per annum. Determine the relevant cash flows associated with the proposed project.
Mr. Salim currently advertises his business in the local newspapers and business directories, at a cost of OMR 1,000 per year payable in advance. Mr. Salim will carry on with this advertising, but he will also need extensive ‘one off’ advertising to promote the move to the new premises. This ‘one off’ advertising in the local newspapers will cost OMR 2,000, which will be paid immediately. In addition to advertising the move in the local newspapers, Mr. Salimcould advertise the move on the local radio. The cost of this would be OMR 5,000, also payable immediately. Mr. Salimbelieves that having a town centre presence and the associated publicity in the local newspapers and local radiowill increase revenue, by 45%.
Overheads, excluding advertising, would increase to a total of OMR 4,000 per year. Overheads currently charged to the business are OMR 1,500 per year. Direct costs such as are budgeted at 5% of revenue.
The cost of capital is 10% per annum. Determine the relevant cash flows associated with the proposed project.
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