A translation company offers its services to businesses that need their documents and sales…

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A translation company offers its services to businesses that need their documents and sales…

A translation company offers its services to businesses that need their documents and sales literature translated into many different languages. Currently it has annual sales of €5 million wages of €2.5 million per year and rent and overheads of €1 million a year. It is considering two options to boost its earnings before tax. Option 1 is to outsource some of its activities to India. This would save €1 million per year in wages and would enable the company to move into smaller premises, saving €250,000 in rent and overheads. However, it woud mean installing some new communications equipment, the interest on the loan for which would be €100,000. The second option is to outsource as before, but to use the capacity this would free up to expand its sales to €7 million per year. This would leave the original wage and rent and overhead expenditure the same, but would require an investment in some new computing equipment and software, the interest on which would be €200,000. Should the company just outsource, or outsource and use the spare capacity to expand its sales?

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