Who owns and operates Snopes?

Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs of New York City?

• 6. Mr. Lee operates a green grocery in a building he owns in one of the outer boroughs of New York City. Recently, a large chemical firm offered him a position as a senior engineer designing plants for its Asian operations. (Mr. Lee has a master's degree in chemical engineering). His salary plus benefits would be $95,000 per year. A recent annual financial statement of his store's operations indicates the following: Revenue $625,000 Cost of Goods Sold 325,000 wages of workers 75,000 Taxes, insurance, maintenance, and Depreciation on building 30,000 Interest on business loan (10%) 5,000 Other miscellaneous expenses 15,000 Profit before taxes 175,000 If Mr. Lee decides to take the job, he knows that he can sell the store for $350,000 because of the goodwill built with a steady clientele of neighborhood customers and the excellent location of the building. He would still hold on to the building, however, and he knows he could earn a rent of $50,000 on this asset. If he did sell the business, assume he would use some of the proceeds from the sale to pay off his business loan of $50,000. He could then invest the difference of $300,000 (i.e. 350,000 - 50,000) and expect to receive an annual return of 9 percent. Should Mr. Lee sell his business and go to work for the chemical company? In answering this question, also consider the following information: a. In his own business, Mr. Lee works between 16 and 18 hours a day, 6 days a week. He can expect to work between 10 and 12 hours a day, 5 days a week, in the chemical company. b. Currently, Mr. Lee is assisted by his wife and his brother, both whom receive no salary but share in the profits of the business. c. Mr. Lee expects his salary and the profits of his business to increase at roughly the same rate over the next 5 years. Justify your answer. A simple yes or no does not suffice need supporting numbers Is is worth Mr. Lee profit to accept the job at the chemical plants and figure out his lost wages or gain wages is accepted.

• Answer:

  There are several different ways you can make this decision. For example, do you want to maximize the hourly wage of Mr. Lee, or his annual income? If he doesn't like working long hours, working for the chemical plant makes sense. On the other hand, if he feels that his brother really needs the work, he needs to keep the business. Also, can his wife get another job? You aren't given enough information to answer these questions, but you should include a paragraph in your answer that shows that you realize that without this information it is impossible to make a final determination. You are however given enough information to calculate the bottom line. In fact they have mostly done this for you. For his old income, you only need to know his profit before taxes; you don't have to know all the line items. For his possible new income, we know that Mr. Lee will make 9% per year on the $300,000 which is $27,000. Plus, he gets $50,000 a year in rent for the building. This is $77,000 income in addition to the $95,000 salary he will receive as a chemical engineer, for a total pre-tax income of $172,000. It is however less than his old income of $175,000 pre-tax. However, as I said he will make more per hour at the new job. You can figure this by dividing the income by the hours worked per year: Owning store: 16 x 6 x 52 =4992 hours/year $175,000/ 4992 = $35.06/hour Chemical engineer: $12 x 5 x 52 = 3120 hours/year $172,000/3120 hours = $55.13/hour Clearly, Mr. Lee will have lots more leisure time on his hands, and will earn about the same income as he would have before. If his wife can work elsewhere, their household income would almost certainly be higher if he took the chemical engineering job. In fact, since he shares the $175,000 with his brother, his income will probably be considerably higher if you consider a "household" him and his wife. The main question I see is, does he enjoy running the store? Would he rather have time with his family? If he really likes being his own boss, then he'll be miserable as a chemical engineer. No amount of money is worth having a job you hate. But in monetary terms, the chemical engineering job is better. No doubt this is why many people take corporate jobs instead of opening their own businesses.