Costs of building and operating the self-storage facilities

Assignment Help Business Economics

Reference no: EM13998676

Sam owns outright (no mortgage payments) two plots of land of equal size in Southern California. One plot is in Victorville (the High Desert) and the other is in the coastal community of Newport Beach. Sam was thinking about going into the self-storage business by building a self-storage facility on one of his two pieces of property. Sam did some calculations and he noticed that the monetary cost (direct payments of money) to build and operate a self-storage facility in either location would be identical over the next ten years with a dollar amount of $2 million. Sam did more calculations and he concluded that either location would bring in the identical revenue over the same ten-year period with a dollar amount of $5 million.Thus, Sam concluded that it did not matter which location he built his self-storage facility because the bottom line (profit) of $3 million over ten years is identical for each location. After ten years, Sam plans to sell both plots of land and then retire to France. In the meantime Sam will be living in downtown LA conducting his business from there (thus Sam will not need to travel to either location – hence where Sam lives now or later has nothing to do with this question).

Given that Sam’s calculations were correct on the costs of building and operating the self-storage facilities and on the revenue, please explain why Sam’s conclusion is incorrect.

Remember, Sam’s calculations are 100% correct. It is only his conclusion that is incorrect. Do not question his numbers in your answer. His numbers are, again, 100% ironclad correct. Your answer needs to be directed only at his conclusion.

Reference no: EM13998676

Questions Cloud

Values of the organizations individual assets : For medical practices, hospitals, and other healthcare organizations, the value of the whole is usually more than the sum of the values of the organization's individual assets. Explain why this is so.

Level of private domestic investment : "A high level of public spending crowds out the level of private domestic investment. Therefore, if the government cuts its expenditures and free resources for private investment, it can ultimately increase income per capita" Comment on the statement

Two changes together affect desired health capital : Suppose that John Smith gets promoted to a job that causes two changes to occur simultaneously: John earns a higher wage, and a safer environment causes his health to depreciate less rapidly. How would these two changes together affect John’s desired..

Costs of building and operating the self-storage facilities : Sam owns outright (no mortgage payments) two plots of land of equal size in Southern California. One plot is in Victorville (the High Desert) and the other is in the coastal community of Newport Beach. Given that Sam’s calculations were correct on t..

Average fixed costs per chip and marginal costs per widget : Advanced Electronics (AE) is a computer chip manufacturer. It has monthly fixed costs of $4,000,000. Its marginal costs are $1.00 per chip. What happens if sales fall by 20% from 3,000,000 to 2.400.000 chips per month? What happens to average fixed c..

Using the six general trends of the general environment : Using the six general trends of the general environment, give a hypothetical example of how each trend could affect a restaurant business.

What types of revenue policies : Funding and revenue for public housing, restrictions on revenues for public housing, policy decisions and/or economic conditions that would affect the revenue for public housing. What types of revenue policies would benefit public housing and the com..

Assess its efforts to manage brand equity : Pick a brand. Assess its efforts to manage brand equity in the last five years. What actions has it taken to be innovative and relevant? Can you suggest any changes to the company’s marketing program?

User Account

All Pages