Question

You are a young entrepreneur and have just started a fishing company. Each fish can be sold for $10. You can choose between three types of boats. Big boats can fish in deep waters and will allow you to fish 100 fish per day. Medium size boats can fish in medium waters and catch 75 fish per day. Small boats can only fish in shallow waters and fish 40 fish per day. Big boats cost $100,000. Medium boats cost $65,000. Small boats cost $30,000. Big boats have maintenance and cost of operation per year is of $200,000 per year. Medium boats have maintenance and operations cost of $130,000 per year. Small boats have maintenance and operations costs of $80,000 per year. You have shown strong business quantitative skills and ample knowledge of macroeconomic theory. Your company has been able to raise $80,000 initial capital from the venture capitalists. You have tight competition from the market. Using an excel sheet, device a strategy for the next 7 years that will make your company grow in the most efficient way (minimize costs, maximize profits). Each year will be a simulation of 5 minutes. Make sure to properly calculate your profits considering yearly costs, sales, and initial investment. You can buy new boats at the beginning of each year. Keep track of your results year by year. Good luck fishing!

Please explain the answer and be clear. Thank you.

Answer 1

Answer:

	Big Boat	Medium Boat	Small Boat
Fish	100	75	40
Initial Costs	$100,000	$65,000	$30,000
Maintenance and Operation Costs	$2,00,000	$130,000	$80,0000

***Initial Capital contribution = $80,000***

***Fish selling price $10 per fish***

	Number of Boats Purchased	Accumulated total number of boats purchased	Cost of Boats Purchased	Maintenance cost for Boats	Total Fish at the End of Each year	Accumulating Total of Fish Captured	Total Profit
Year 1	1 Medium	1 Medium	$65,000	$130,000	27,375	27,375
Year 2	0	1 Medium	$0	$130,000	27,375	54,750
Year 3	3 Medium	4 Medium	$195,000	$520,000	109,500	136,875
Year 4	6 Medium	10 Medium	$390,000	$1,300,000	373,750	410,625
Year 5	26 medium	36 Medium	$1,690,000	$4,680,000	985,500	1,396,125
year 6	80 Medium	116 Medium	$5,200,000	$15,080,000	3,175,500	4,571,625
Year 7	256 Medium	372 Medium	$16,640,000	$48,360,000	10,183,500	14,755,125
Accumulated total At the end of the year 7		372 Medium Boats	$24,180,000	$70,200,000		14,755,125	$53,171,250*

* Total profit = Total sales - Cost of boats - maintenance costs

= (14,755,125 × $10) - $24,180,000 - $70,200,000

= $147,551,250- $24,180,000 - $70,200,000

= $53,171,250