A restaurant project is being evaluated that owner wishes to operate for 6 years, which has an initial investment consisting of purchasing fixed assets with following characteristics: - Furniture and kitchen equipment: Cost of $360 million, with an economic useful life of 6 years, at end of which it is estimated that they will have a scrap value of $40 million. - Miscellaneous kitchen utensils: Cost of $120 million, with an economic useful life of 3 years and a scrap value of $ 0. In addition, at end of year 3 the kitchen utensils will have to be replaced for same amount and characteristics of initial investment, since they are highly fungible assets. Sales revenue is expected to be $400 million in year 1, $700 million in year 2 and $900 million from year 4 onwards. This expected behavior is due to belief that restaurant will gain prestige and sales over time. Cost of sales is projected as 40% of sales and variable selling and administrative expenses as 4% of sales. Latter correspond to commission of the business manager and the 2 chefs. On the other hand, fixed disbursable expenses are es
A restaurant project is being evaluated that owner wishes to operate for 6 years, which has an initial investment consisting of purchasing fixed assets with following characteristics:
- Furniture and kitchen equipment: Cost of $360 million, with an economic useful life of 6 years, at end of which it is estimated that they will have a scrap value of $40 million.
- Miscellaneous kitchen utensils: Cost of $120 million, with an economic useful life of 3 years and a scrap value of $ 0.
In addition, at end of year 3 the kitchen utensils will have to be replaced for same amount and characteristics of initial investment, since they are highly fungible assets.
Sales revenue is expected to be $400 million in year 1, $700 million in year 2 and $900 million from year 4 onwards. This expected behavior is due to belief that restaurant will gain prestige and sales over time.
Cost of sales is projected as 40% of sales and variable selling and administrative expenses as 4% of sales. Latter correspond to commission of the business manager and the 2 chefs.
On the other hand, fixed disbursable expenses are estimated at $ 240 million per year, and include salaries, rent, basic expenses, contracted services and others.
IT IS REQUESTED: Considering an income tax rate of 25% and an
a) Construct cash flow of the project.
b) Evaluate investment under study through
c) Evaluate investment through Benefit-Cost ratio.
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2 consultations:
1) I don't see calculation of
2) what happened to flows of year 3? no sales? why? It is mentioned that in year 4 there are sales, but it does not say that in year 3 there are no sales...an other costs, etc.
Please confirm both questions. Thank you
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