Question

Toby used 40 pounds of fertilizer that she bought in bulk ($1,000 for 2,000 pounds). It took her employee 1.5 hours to spread the fertilizer (she is paid $15/hour) with the motorized spreader. Toby paid $4,000 for the spreader three years ago and it is estimated to last 10 years or 10,000 pounds. To get to the job site, a company truck and trailer was used (cost: $40,000 expected to last 10 years or 200,000 miles, the site visit was 30 miles round trip). This was the only use of the truck, trailer, and spreader for that day. Additional employee costs include 10% payroll tax and $730 per year in worker’s compensation insurance. You may assume an employee works 2,000 hours per year and Toby currently charges $2.12 per pound to spread fertilizer. Calculate the ROI for this job using the Dupont method, compare this to the RI (assuming a 10% required return). What is the required return to earn zero RI? Find this rate using Excel’s Solver function. Given this information, what would your recommendation to Toby be regarding the maximum interest rate on a loan for expanding the fertilizer operation? PLEASE SHOW FORMULAS IN EXCEL

Answer 1