Question

Please solve in Excel format and show step-by-step formulas Not wanting to leave his beloved alma mater, Will Anderson has come up with a scheme to stay around for 5 more years: He has decided to bid on the fast-food concession rights at the football stadium. He feels sure that a bid of $30,000 will win the concession, which gives him the right to sell food at football games for the next 5 years. He estimates that annual operating costs will be 40% of sales and annual sales will average $50,000. His Uncle Josh has agreed to lend him the $30,000 to make the bid. He will pay Josh $7,700 at the end of each year. His tax rate is 28%. (a) Use a spreadsheet model to answer the following question. What is Will’s average annual after-tax profit? Assume that the yearly payments of $7,700 are tax deductible. (b) Suppose that sales will probably vary plus or minus 40% from the average of $50,000 each year. Will is concerned about the minimum after-tax profit he can earn in a year. He feels that he can survive if it is at least $8,000. Model annual sales for the 5 years as five continuous uniform random variables. Based on a sample of 4,000 five-year periods, estimate the probability that over any five-year period the minimum after-tax profit for a year will be at least $8,000. Should Will bid for the concession?

Answer 1