Problem
Your sales force is asking for more administrative support You have estimated you can hire a new person in this role at an all in cost of $30 per hour hrs per month for 180 hrs per month. The upfront hirin and training expense is $5,000 (now). You have 3 sales people, and are guessing each sales person can gain 2 additional new customers per month if they have an adminstrative support person handling some of the paperwork and logistics. Assume each customer acquired has an estimated total lifetime value (at the time of closing the new sale) of $1,000 in profits. You have been asked to consider only 1 year of new sales in making this decision ( the average turnover of these positions is once per year). Assume the company considers it's opportunity cost to be 12% per year compounded annually. This lucky company pays no taxes Are the profits from the new customers worth the training and salary cost of the new hire?
i. What is the appropriate discount rate to use for this analysis?
ii. What is the total PV of the new customers gained in a single year?
iii. What is the value today of the salary cost?