Fee cash flow

Gourmet normally deals in bakery and sweets. They have only one restaurant in Lahore
yet and that is situated in Faisal Town. They have long been planning to open another
one. They hired a consultant to perform site analysis, the cost was Rs 200,000. He
suggests that the new restaurant should be opened in Model town. Gourmet already owns
site there having a market value of Rs 50,000,000. They intend to establish the restaurant
on the very site. Both restaurants would not be too far away and there is already a bakery
situated adjacent to the new site. The construction project would cost about Rs
1000,000,000. The furniture and fixture would cost Rs 75,000,000, installation cost
would be Rs 25,000,000. Some customers who already visit the other restaurant would
switch to this one as they live in Model Town and those would constitute 15% of the
sales approximately. On the other hand some customers coming to the restaurant would
also shop from the adjacent bakery there; best estimate says its sales would grow by 20%
only because of this restaurant. The project would complete at the end of this year and
would start operations from the next year i.e. 2011. First year sales are expected to be Rs
15mn whereas bakery’s Rs 5. The pattern of sales growth would be as follows: 10%
2012, 15% 2013, 10% 2014, and 5% 2015. operating cost would follow a pattern of 75%
of sales for all coming years. Depreciation would be 10% of the fixed assets. The items
which would grow as a percentage of sales are given below.

Income statement
2011
(,000,000)
Expected sales 15
Operating cost(75%)
Dep(10%)
EBIT

Balance Sheet Items %of sales

Cash 5
Inventory 20
Receivables 15
Fixed Assets-net 50
Payables 15
Accuals 10